From the Archive: Wage and Hour lawsuits are on the rise and costly

The changes in the FLSA regulations are causing headaches for many employers, especially small ones.
The changes in the FLSA regulations are causing headaches for many employers, especially small ones.

With the changes in the Fair Labor Standards Act due at anytime now, I thought while I was away this week I would rerun this post. 
If you have had the misfortune to be at home during the week and you watched daytime television you have seen the many commercials for attorneys advertising their services. Mixed in with the car wrecks and workers’ comp commercials are now a good many ads for overtime or wage loss. Along with the press coverage of $15 an hour minimum wage protests and the crackdown on the use of independent contractors the number of wage and hour cases that have made it to federal courts has risen considerably.

Up in 2015

According to Seyfarth Shaw wage and hour lawsuits have increased 450% since 2000 and in Fiscal Year 2015 they reached an all time high of 8,781, up 7.6% over 2014. A wage and hour lawsuit is the most common action taken against employers in federal court. According to the article “This year’s total of 8,781 cases is more than any two pre-2005 years combined.” A major portion of the rise this year is most likely due to the press coverage wage issues have received, especially the changes coming in the FLSA exemption status. My guess is that this trend will continue in 2016 and then when the new regulations are published in late 2016 (which is the beginning of FY 2017) we will see an even bigger spike in lawsuits as companies make changes and make employees aware that may have been classified wrong from the beginning.

Costs are high

Wage and hour lawsuits are costly. According to Dan Wisniewski the average per claimant settlement cost was $7000. The average case cost in 2013 was $4.5 million per case. The larger cases cost $11.5 to $36 million.
The reason these cases are so costly are because they are seldom single person cases. If you are screwing up one person’s pay you are likely screwing up many. In Wage and Hour law you are either doing it right or you are doing it wrong. Wrong means you pay, regardless of your intent. If you intended to do wrong you pay more. Even if you are a small company and you only have 5 employees that you have not been paying correctly, at $7000 per claimant that is still $35,000 plus your lawyer’s fees and their lawyer’s fees. It is not hard for a case to easily get to $100,000 or more without any effort. Those TV attorneys know this, as do non-TV plaintiff attorneys, and they are lining up for the big “Cha-ching”.

Can you afford to write that check?

Not too many smaller companies I know can really afford to write the $100,000+ check for a mistake in HR and payroll. Although the FLSA is an archaic law that does not really deal with the realities of much of the world of work today, until we can get it changed on a legislative level we have to abide by the law. You need to understand the proper payment of overtime it is not as simple as 1.5 times the employee’s hourly rate. You have to understand how exemptions work and that is going to be changing radically. You have to understand the impact of supplemental pay on overtime. You certainly need to understand the basic of proper timekeeping.
Now is the time to be looking at all of these things. The FLSA revision is opening a window for correction, but it is also raising awareness. If you do not have the in-house expertise now is the time to get an attorney or a good consultant to help you.
Don’t say I didn’t warn you.

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