Five Phrases that Portend Wage-and-Hour Woes

We spend a lot of time litigating wage-and-hour cases. But we do a lot of counseling on the subject, too. And over the years, through thousands of hours of discussing with clients compliance with wage-and-hour laws like the Fair Labor Standards Act (“FLSA”), we’ve identified a handful of red-flag phrases that often are associated with compliance issues.

Here’s a rundown of the top five:

No. 1: “But they’re paid fairly.”

For employers new to the FLSA, it’s not uncommon to struggle with the statute’s name—calling the law the “Fair Labor Standard Act” suggests that there’s some room for the consideration of “fairness.” This couldn’t be further from the truth. The FLSA is a compliance statute, and for the most part, whether an employee’s compensation terms are fair or otherwise is irrelevant.

No. 2: “We’ve paid them this way for over twenty years.”

In recent years, employers (and industries) that have taken a set-it-and-forget-it approach to wage-and-hour compliance have been hard hit by claims. While it seems logical to assume that there’s no non-compliance with respect to a position that has been paid the same way for twenty or thirty years, in reality, historical consistency with respect to a particular pay practice offers an employer no refuge under the FLSA and analogous state laws. This can partly be chalked up to the fact that there have been changes to wage-and-hour laws, regulations, and rules over the years. But there’s something more, too: The popularity of wage-and-hour claims among plaintiff’s lawyers has skyrocketed over the past decade or so, and to such extent that there now exists a very capable bar of plaintiff-side lawyers operating nationwide searching out potential claims to file.

No. 3: “All of my competitors do it this way.”

Many a mother, including mine, has responded to this type of comment with the following question: “If all of your friends jumped off a bridge, would you jump, too?” The same goes for wage-and-hour compliance—the sense of comfort that comes with conforming pay practice to industry standard is largely false. Under the FLSA and state wage-and-hour laws the facts that matter the most are those applicable to the specific employee claims in issue, which means that true comfort around compliance comes not from surveying how other employers may compensate employees doing a similar job, but instead from analyzing the duties, terms, and conditions of the job within your organization.

No. 4:  “An employee who makes this much money cannot be entitled to overtime.”

The FLSA is an old law. And while it has been updated around the margins over the years, it has not been overhauled to reflect the realities of the way we work now. One outdated aspect of the statute is its failure to incorporate any absolute compensation threshold above which overtime protections do not apply. In other words, while the amount an employee is paid (i.e., highly compensated or not) matters for purposes of determining the correctness of exempt status, it is not, on its own, determinative. This is, perhaps, best illustrated by the fact that the past two decades or so have brought us scads of cases in which employees making sometimes as much as $300,000 per year allege that they are misclassified as exempt and owed unpaid overtime.

No. 5: “I treat my employees well; they won’t sue me.”

Treating employees fairly is, no doubt, good business and an effective strategy for avoiding discrimination and retaliation lawsuits. But over the years, we’ve found that employees view FLSA claims in a different light. An employee doesn’t have to feel that she was treated unjustly to form the opinion that there is some technical non-compliance with respect to the way she is paid. And suing to recover compensation doesn’t feel personal to an employee the same way accusing a manager of unlawful discrimination does. We’ve also learned that many employees, regardless of how rich their compensation terms may be, share the view that they should be paid at least a little more for the work they do. It doesn’t require much of an intellectual leap to get from this sentiment to the conclusion (correct or not) that an employer must have somehow violated wage-and-hour requirements. Employers also must keep in mind that the FLSA provides for collective actions, and for many employees, consenting to join such action as a non-named plaintiff in response to court-authorized notice received by mail doesn’t feel the same as filing a lawsuit.

The Bottom Line for Employers

None of the above should be taken to mean that the phrases identified are wholly without merit. There’s certainly some truth, for example, to the notion that a happier employee tends to have less motivation to look for reasons to file suit against her employer. But the point of red-flagging these phrases is to underscore that the FLSA and its state-law counterparts are highly technical compliance statutes that, at least in some cases, create pay-related requirements that seem to defy logic. Given this, employers simply must not hang their hats on generalized notions of fairness or the belief that historical consistency in pay practice or conformity with industry practice is effective insulation from claims. The best wage-and-hour defense is a good offense—conducting periodic internal audits that allow for careful consideration of the specific facts in issue and the way those facts should be applied to applicable law.