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May 2006
The Recorder
By Peter Brown
and David Urban
The below article was posted online
at The Recorder's website at
www.callaw.com.
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PREVENTIVE
MEASURES FOR PUBLIC EMPLOYERS
Recent years have seen a rise in the
number of lawsuits brought by employees against cities,
counties, and other public entities under the Fair Labor
Standards Act (“FLSA”). These actions, which are brought as
“collective actions” specifically authorized by the FLSA, can
impose substantial liability on public employers. Legal
periodicals regularly report on private sector wage and hour
settlements and verdicts well into the tens of millions of
dollars, sometimes over a hundred million. The FLSA applies
to public sector employers just as it does to those in the
private sector, and presents the same magnitude of exposure.
This Article will describe the dangers of FLSA collective
actions (why an organization’s liability can be so
substantial), and how public employers can take steps to avoid
such lawsuits.
The FLSA among other things sets forth
the minimum hourly wage an employer must pay its employees and
requires employers to pay overtime compensation at not less
than 1 ½ times the regular rate for hours worked in excess of
a specified number (usually forty hours in a seven day
workweek). The Act also contains requirements regarding
record keeping and posting of notices, and prohibits
retaliation against employees who assert claims.
The FLSA allows employees to bring claims
under the Act on their own behalf. It also allows multiple
employees to bring claims as part of a “collective action” in
which each aggrieved employee becomes a party to the action.
An employee can join the collective action if he or she is
“similarly situated’ with the Plaintiffs, i.e., affected by
the same “decision, policy or plan” challenged by the
lawsuit. To join as a Plaintiff, the employee must only
execute a consent to join the action and provide it to
Plaintiffs’ counsel for filing.
FLSA actions can threaten public sector
employers with high exposure, first, because the regular
damages awarded can be substantial. An employer who
mistakenly pays its employees improperly under the FLSA must
pay appropriate back pay. The back award can apply to a whole
class of employees, can constitute a substantial fraction of
their wages, and can extend back several years. The statute
of limitations for an FLSA action is two years, extended to
three if the employer’s violation is “willful.” A violation
is “willful” if an employer knew or showed reckless disregard
as to whether its conduct was prohibited. An employer will
also have to provide back pay for the time during which the
lawsuit was pending (unless the employer changed its practices
during that time). If a whole class of employees is part of
the lawsuit, the back pay liability can add up quickly.
What is more, the FLSA requires an
employer to pay “liquidated damages,” typically in an amount
equal to the back pay owed. The employer must pay such
liquidated damages unless it can show it acted in “good
faith.” To make this showing, the employer must prove that it
had an honest intention to ascertain and follow the
requirements of the FLSA and that it had reasonable grounds
for believing its conduct complied with the Act. Even an
employer’s making this good faith showing does not itself
exempt the employer from liquidated damages – rather, it
affords the Court “discretion” to eliminate or reduce the
liquidated damages. (Even though they effectively amount to
double damages, liquidated damages are considered
compensatory: as some point out, the award appears to assume
that employees deprived of back wages would have earned a 100%
return on investment of those funds.)
Next, prevailing plaintiffs under the
FLSA are entitled to an award of reasonable attorneys’ fees
and court costs. This award could constitute a substantial
additional liability for employers, first, because Plaintiffs’
counsel’s rates in wage and hour cases are often high.
Plaintiffs’ counsel can argue that their years of experience
in such matters entitle them to hourly rates as high as $400
per hour or more. Also, the hours spent by Plaintiffs’
counsel can be extensive, because collective actions can last
a number of years and require both sides to engage in
fact-intensive discovery and motion practice. Moreover, the
award of fees, even if “reasonable” for purposes of applicable
law, would not actually constitute a fee amount supported by
the market (i.e., that clients would actually agree to pay the
Plaintiffs’ lawyers). Instead, it would constitute in effect
another substantial liability to be borne by the employer.
Finally, it should not be forgotten that
willful FLSA violations can be criminally prosecuted. The
penalty for a first offense can be up to $10,000, and
imprisonment is possible for subsequent offenses.
The following types of FLSA claims are
being brought against public employers with some frequency:
1. Failure to Calculate Regular Rate of Pay:
Cases often involve claims that employers pay overtime using
the wrong rate of pay. Under the basic formula for
calculating overtime pay, employees must be compensated for
overtime hours at a rate of at least 1 ½ times an employee’s
“regular rate” of pay. This rate includes not only the
employee’s base rate but also “all remuneration for
employment paid to, or on behalf of, the employee” except
for payments specifically excluded under the Act. For
example, employees may receive longevity pay, bilingual pay,
educational incentive pay, or other additional pay as part
of their regular compensation, but the employer may have a
practice of excluding such pay in computing overtime.
Employees frequently challenge this type of practice under
the FLSA.
2. “Suffer or Permit” Actions:
The FLSA requires that if an employer “suffer[s]” or “permit[s]”
employees to work, the employer must compensate them.
Courts have interpreted the foregoing phrase of the FLSA to
mean that if an employer knows or should know an employee is
or was working overtime, the employer must comply with the
maximum hours provision of the statute. Cases arise
involving these principles when, for example, management
asks public employees to do work-related tasks while
off-the-clock, such as preparing for court appearances,
preparing reports, or engaging in other types of tasks,
without compensation or overtime pay.
3. Qualification for
Overtime Exemptions: The FLSA includes full and
partial exemptions from overtime. An example of a full
exemption is that for executive, administrative, or
professional employees, the so-called “white collar”
exemptions. An example of a partial exemption is that for
employees engaged in “fire protection activities” -- such
employees are exempt from overtime requirements, but only
until they work a certain extended period of time within a
particular period, at which point the employer must pay
overtime. Litigation frequently occurs regarding whether
the actual job responsibilities and work of employees meet
FLSA overtime exemption requirements.
4. Discrete FLSA Issues:
Litigation also frequently involves miscellaneous discrete
issues pertaining to the FLSA, including the timeliness of
wage payments, an employer’s payment of compensatory time
off (“CTO”), work schedule issues, whether types of time
worked are de minimis and need not be paid, and other
matters.
Public employers (and private
employers) can reduce the likelihood of FLSA collective
actions, and the substantial exposure they present, by
taking preliminary preventive measures. These include the
following:
A. Exemption Audit:
The employer should conduct routine audits to confirm that
exempt employees in fact qualify for the applicable
exemptions. Such audits should include review of exempt
employee job descriptions, applicable memoranda of
understanding with the employees’ union (“MOU’s”),
personnel rules and payroll policies, and prior grievances
and lawsuits regarding exemptions. Auditors should
interview selected employees to confirm that job
responsibilities and work conform to descriptions. Such
audits should also determine conformance to the new
extensive regulations the Wage and Hour Division,
Department of
Labor, promulgated in the
summer of 2004 to modify the definitions of the overtime
exemptions under the FLSA.
B. Payroll Audit:
The employer should conduct routine payroll audits to
confirm, among other things, that employees are paid
overtime correctly. Such audits should involve a review
of payroll records, personnel policies, MOU’s, as well as
all documents used by finance to calculate payroll.
Auditors should interview employees responsible for
recording and processing work time records and pay checks.
Interviews should also cover how staff calculates
overtime, how they process pay checks, and when they issue
regular and overtime pay. Auditors should carefully
analyze MOU’s, because MOU’s frequently contain provisions
at odds with FLSA requirements.
C. Document Compliance
Efforts: The employer should thoroughly document
its efforts to comply with the FLSA, for example, by
preparing evaluation memoranda, summaries of policies and
materials reviewed, and factual data analyzed. Such
documentation will help the employer prove a “good faith”
defense, if necessary, and can help defeat a finding of
“willfulness” for statute of limitations purposes.
D. Training on FLSA:
The employer should have its personnel department, its
payroll/finance staff, its supervisors, and management
trained periodically on FLSA compliance.
E. Engage Outside Specialists:
Engaging consultants and counsel specializing in FLSA
matters can greatly facilitate compliance efforts, and can
greatly help prove an employer’s good faith.
Liebert Cassidy Whitmore specializes
in representing public agencies in the defense of FLSA claims,
and assists agencies in auditing their FLSA compliance. For
more information, see www.FLSAaudit.com.
Peter Brown, a partner with Liebert
Cassidy Whitmore, has been defending California public
agencies since 1990 regarding claims brought for violations of
the Fair Labor Standards Act. In addition to public agency
FLSA defense work, Peter has developed the www.FLSAaudit.com
website, which enables public agencies to audit their own FLSA
compliance. Peter has also spoken at many conferences in
California as well as throughout the United States on the many
pitfalls which the FLSA presents and how to avoid them.
David Urban, who is of counsel with
Liebert Cassidy Whitmore, has fourteen years of experience
practicing litigation in federal and state courts, and has
successfully defended numerous employment litigation cases.
He provides employment advice to California employers, and was
a contributing author to the ABA Treatise The Fair Labor
Standards Act.
Reprinted with permission from the (c) "Publication Year"
ALM Properties, Inc. All rights reserved. Further duplication
without permission is prohibited. |
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