Submitted by: Karyn Oyler, SPHR

Legal Ramifications for FLSA Misclassifications
Have any of your employees complained about not getting paid overtime? Do you have outside sales employees or independent contractors? Are you sure that all of your positions are classified appropriately according to the FLSA?

If so, now would be a good time to review the wage and hour laws to ensure that your employees are properly classified. There are new legal ramification for FLSA misclassification both in the courtroom and new legislation in congress. Here is an update on both.

23,845 Wage and Hourly Complaints Filed with DOL in 2009
On May 25th, SHRM posted an article by Joanne Deschenaux entitled “Wage and Hour Collective and Class Actions Are on the Rise”. With 23,845 complaints filed with the DOL in 2009, the number of collective and class action suits also increased. As we all know, there is strength in numbers. There is also great incentive for employees to band together to file class action suits against a company. Such incentives include:

• On average, successful plaintiffs typically receive double damages, plus the cost of attorney’s fees.
• During the lawsuit, employees and advocates become more informed of their rights to private enforcement of the FLSA and state wage claims.

The majority of the claims appear to be centered on claims of misclassification of employees as exempt from overtime. According to the article “In most cases, employers who fall out of compliance are not trying to get around the law, but are trying to follow the law to the letter. Unfortunately, this law in this area can be very mechanical – you either get it right or you get it wrong”.

For additional information on this article, click the following link: http://www.shrm.org/LegalIssues/FederalResources/Pages/WageandHour.aspx

Employee Misclassification Prevention Act
Because of the increase in complaints filed, Senator Sherrod Brown (D-OH) and Representative Lynn Woolsey (D-CA) introduced this new legislation in both houses of Congress on April 22, 2010.
On May 25th, SHRM posted an article by Jackson Lewis where he outlined the effects of the bill. Jackson explains that “the new bill is aimed at insuring that workers who are considered “employees” under the broad test of the Fair Labor Standards Act (FLSA) are properly classified by their employers – making them eligible for minimum wage and overtime compensation and other statutory employee protections and providing tax revenue to the government through employer withholdings and payments. Securing this two-pronged benefit to the employee and the government is a clear focus of the proposed legislation.”

The legislation has several provisions targeting misclassification, but here are just a few:
• Employers will be required to keep classification records for each employee or nonemployee. Misclassification of workers will be an FLSA violation.
• Increased penalties on employers for misclassified workers.
• Double liquidated damages for employers who fail to accurately classify an individual as an employee and violate the minimum wage or maximum hour provisions of FLSA.
• Employers will be required to notify employees in writing of their classification.
• Legislation provides protection against discrimination for employees who fight to be accurately classified.
This new legislation would have an immediate impact on the employers.
• Would increase administrative burden due to increased record keeping.
• Would increase financial penalties for violations of misclassifications and tax increases.
• Creates incentive for complaints of misclassification by workers (and/or unions).

For additional information on this new legislation, click the following link:
THOMAS – Bill Text – H5107

For additional information on the article by Jackson Lewis, click the following link:
http://www.shrm.org/LegalIssues/FederalResources/Pages/FLSAMisclassificationBill.aspx