In today’s business climate, risk management is more important than ever, as litigation experts forecast that employers will continue to face stark wage and hour compliance risks. In this article (Part II in our series of lessons learned from landmark lawsuits), we’re recapping some serious wage and hour violations of times past in order to illustrate the dangers of non-compliance:
Substituting comp time for overtime
Back in 2009, three Bank of America bank tellers came forward with allegations that the bank’s company-wide policies resulted in serious FLSA violations committed not only against them but 185,000 employees. According to the plaintiffs, the bank required employees to work before and after shifts without pay, understaffed their call centers, enforced poor scheduling policies, and compensating employees with compensatory time (comp time) instead of overtime.
Comp time is the allowance of employees to take additional time off after working extra hours; it is an illegal practice (in most cases) and has no bearing on overtime pay. Comp time cannot legally be substituted for overtime. The FLSA clearly states that non-exempt employees are to be paid time-and-a-half wages for all hours worked over 40 in a week. Eventually, in 2013, BoA agreed to settle to the tune of $73 million, denying all allegations but settling to avoid the bad publicity of a drawn-out court spectacle.
Classifying workers as exempt for overtime
Improperly classifying employees is a costly mistake that employers commit time and time again (intentionally or not). Unfortunately, the consequences can be dire, as was the case with Ecolab Inc., which paid a whopping $29 million class action settlement in April of 2013 to resolve claims that it improperly classified hundreds of contracted exterminators, denying them overtime.
A motion was filed in California federal court by Exterminator Doug Ladore, who alleged that the company forced himself and others to work 12-hour days without keeping track of overtime hours. In response to the claim, Ecolab cited the overtime exemption established in the FLSA pertaining to hazmat workers, an exemption that applies to occupational workers who carry harmful chemicals, like truck drivers. The exemption was designed to discourage hazmat workers from working extra-long and potentially dangerous shifts.
The judge overseeing the case ruled that the exemption didn’t apply to workers who incidentally carry small quantities of chemicals as part of their jobs. Not only did the company have to pay, but they also had to re-classify its pest elimination service specialists and select segment specialists as non-exempt.
Enforcing questionable practices
In March of this year, a former server at the famous Serendipity 3 restaurant, Irwing Velandia, filed a wage and hour class-action lawsuit, alleging that restaurant owner Steve Bruce failed to pay proper wages and required employees to work off the clock. The plaintiff claims that:
- Employees who earned tips were forced to work off-the-clock before and after shifts and were required to perform paperwork at an unpaid rate at the end of each shift
- Tipped employees were required to spend more than 20 percent of their shift performing non-tipped tasks like preparing tables and restocking condiments, activities that took them away from activities that could have earned them tips
- The restaurant refused to pay time-and-a-half wages to employees who worked overtime clocking more than 40 hours a week
- Employers were required to pay for the cleaning of their mandatory uniforms, and docked wages for tipped employees in the event of customers walking out or the cash register being short
These allegations certainly qualify as serious violations of several guidelines outlined in the FLSA. Angela Reddock-Wright, an employment law attorney and mediator with the Reddock Law Group in Los Angeles, discusses the potential consequences for an employer who fails to follow wage laws.
“Although tempting, the consequences for an employer who fails to follow the wage laws can be far greater than compliance with the laws. This could include penalties up to three times the original amount due to an employee, and up to three years back pay for any employee impacted by the employer’s failure to pay or classify properly. Additionally, the employer could be subject to audits and additional penalties by the IRS, the state franchise tax board and unemployment agency, and the state wage and hour board, coupled with a possible civil lawsuit by the employee. In Los Angeles, the laws allow for criminal charges against an employer for wage theft.”
In summation, says Wright, not complying with the wage and hour laws simply is not worth it. What do you think of the cases we’ve recapped here? Let us know your opinion in the comments or any of our social media pages.