The U.S. Department of Labor (DOL) is recovering an increasing amount of damages in overtime claims as it goes after employers that are misclassifying workers or miscalculating overtime.
“I think the Biden administration has signaled a shift in focus away from compliance and toward enforcement,” said Joseph Harris, an attorney with A.Y. Strauss in New York City. “One of the earliest indications of that shift was the termination of the Department of Labor’s PAID [Payroll Audit Independent Determination] program, shortly after President Biden took office.” The PAID program allowed businesses to self-report federal minimum wage and overtime violations in an effort to avoid litigation under the Fair Labor Standards Act.
Recent DOL Actions
The DOL recently has recovered:
- $867,572 in owed tips and overtime to 910 workers in Texas who weren’t paid the correct time-and-a-half rate for all hours worked over 40 in a workweek.
- $731,492 in overtime back wages for 337 Texas sanitation workers who were paid a straight daily rate even though they often worked more than 40 hours per week.
- $196,350 in overtime back wages for 55 workers at six locations in Virginia. The employer was found to have failed to pay the tipped employees the proper overtime premium of time-and-a-half for hours over 40 in a workweek.
“The department has announced that it will be hiring 100 new wage-hour investigators,” Harris said. “Although the federal Department of Labor is important to watch, employers would be well-advised to consider the enforcement priorities of their state departments of labor as well.”
Harris said it’s unusual to see an employer that intentionally disregards the law and refuses to pay overtime.
“Rather, from what I’ve seen, overtime claims often arise from a misunderstanding about the wage-hour laws, as well as more technical violations,” he said.
For example, a worker and a company may agree that the worker is an independent contractor. Contractors do not receive overtime. Later, the worker challenges that determination, claiming that they were an employee entitled to the protection of the wage-hour laws, he noted.
“Overtime claims can also arise when employers think that paying a salary means that the employee is automatically exempt from overtime,” Harris said. “Another common fact pattern is allowing a nonexempt employee to perform some work during an unpaid lunch break or to work a few minutes before or a few minutes after their shift starts and ends.”
He noted that while these may seem like small amounts of additional time, they can add up. “When combined with liquidated damages and attorneys’ fees, the liability can be staggering, particularly if the case is brought as a collective action.”
Misclassification as an Exempt Employee
“The single most common overtime claims come in the form of challenges to an exempt classification, usually under one or more of the so-called white-collar exemptions,” according to Jim Coleman, an attorney with Constangy, Brooks, Smith & Prophete in Winston-Salem, N.C.
“Generally, in order for an employee to qualify for exemption status, the employee must satisfy both a salary-basis test and a duties test,” noted Andrew Singer and Marisa Sandler, attorneys with Tannenbaum Helpern Syracuse & Hirschtritt in New York City, in a joint e-mail.
The salary threshold is now $35,568 per year.
The duties tests denote which employees are exempt—not eligible for overtime pay—and they depend on a variety of factors. Each of the three white-collar exemptions has slightly different criteria:
- Executive exemption. The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee’s suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight).
- Administrative exemption. The employee’s primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
- Professional exemption. The employee’s primary duty must be to perform work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.
Another common overtime claim comes from nonexempt employees who claim they worked off-the-clock hours and such hours exceeded 40 per workweek, Coleman said.
“Off-the-clock work includes tasks like preparing or closing out a cash register, time spent receiving assignments, checking and perhaps responding to e-mails and text messages, going through security checks, and putting on and taking off PPE [personal protective equipment] or other similar required clothing or protective materials,” said Randi May, an attorney with Hoguet Newman Regal & Kenney in New York City.
Singer and Sandler noted that employers have potential defenses available to them from overtime claims.
For example, an employer could argue that the employee:
- Was correctly classified as an exempt employee.
- Did not work all the hours they claim to have worked.
- Was properly compensated for all hours worked.
- Is not entitled to liquidated damages because the employer acted on a reasonable, good-faith belief that it was not violating the law.
“The best defense is a good offense,” said Robert Boonin, an attorney with Dykema in Ann Arbor, Mich. “Perhaps the best offensive play is to engage a law firm to oversee or conduct a comprehensive wage and hour audit, one that covers all of the classification issues and all time and attendance practices and policies.”
Boonin added, “A good audit could insulate the employer from being sued, being found not liable if sued or audited, and perhaps most significantly, substantially reduce the employer’s exposure to liability if liability is found.”