Overtime Advisor : New York Employment Lawyer & Attorney : Greenwald Doherty Law Firm : NY Wage & Hour & Discrimination : Overtime Advisor Law Blog

In yet another case illustrating the pitfalls of giving employees compensatory (or “comp”) time in lieu of paying overtime, a wage and hour lawsuit was recently filed against the Bank of America. The suit, filed as a collective action, alleges that bank tellers and personal bankers in Bank of America branches throughout the United States were systematically denied overtime pay. 

In addition to allegations that the bank gave them comp time instead of paying overtime, the complaint alleges that Bank of America instructed these tellers and personal bankers not to record any hours they worked over 40 in a workweek.  The Plaintiffs also allege that Bank of America simply eliminated overtime hours from the tellers’ and personal bankers’ time records.  If true, the practices concerning the hiding or eliminating of overtime hours would represent particularly egregious practices on Bank of America’s part.  
  
The practice of providing employees with time off in lieu of paying them overtime compensation may not seem so nefarious, but it is still generally illegal for private employers.  Unfortunately, private sector employers often believe in good faith that giving comp time is a legitimate and permissible alternative to paying overtime. 

Except in certain tightly controlled public employment situations, the Fair Labor Standards Act does not allow employers to substitute compensatory time off for overtime pay.  Overtime must be paid at one and one-half times an employee's regular rate of pay for all hours actually worked in excess of 40 in any one workweek.  Employers can certainly provide their employees with comp time as an added benefit for working overtime hours, but overtime hours worked must be appropriately compensated regardless.    

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In recent years, the U.S. Department of Labor (“DOL”) has informally partnered with advocacy groups and grassroots organizations of various states on behalf of workers.  This has engendered a more proactive DOL, resulting in more cases, and more importantly, more fines.  Employers that do not maintain employee time records, or keep shoddy time records are feeling the brunt of this increased enforcement. 

The problem with poor time record retention is simple.  If an employer fails to maintain accurate time records, an employee’s credible testimony or other evidence concerning his or her hours worked will be sufficient to prove an overtime claim.  The burden of proof then shifts to the employer to show that the hours claimed were not worked.  Challenging the employee’s assertion is a difficult burden without records to back up the employer. 

This may have been part of the reason carwash chain Lage Management Corporation agreed in late June to pay $3.4 million in back wages and liquidated damages to almost 1200 current and former employees to settle a lawsuit brought by the U.S. Department of Labor in August 2005.  This amount was in addition to the $1.3 million in back wages and damages it had already paid to 200 other employees in three previous settlements in this matter. 

Although there appears to be a multitude of FLSA violations occurring at Lage Management Corporation carwashes, the inability to provide adequate time records probably doomed these carwashes from the start.  The takeaway is simple.  For employers who are properly paying employees for the work they provide, maintaining and ensuring that time records are accurate will help them defend themselves against future claims, respond to government requests for information, and avoid penalties for failure to comply with applicable laws.    

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When the Fair Labor Standards Act (“FLSA”) regulations were amended in 2004, one of the “victories” for employers was the newly created highly compensated worker exemption. Under this exemption, an employee whose duties are not sufficient to make him/her ineligible for overtime pay under one of the traditional white collar exemptions (executive, administrative or professional) can still be exempt if he/she is a “highly compensated” worker.

The requirements for the “highly compensated” exemption are:

                 “1.        The employee earns total annual compensation of $100,000 or more, which includes at least $455.00 per week on a salary basis;

2.              The employee’s primary duty includes performing office or non-manual work; and

3.              The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.”  

In short, even if an employee’s primary duties do not qualify him or her for one of the white collars exemptions from the FLSA’s overtime requirements, the employee can still be exempt (and ineligible for overtime pay), as long as he or she earns  over $100,000.00 per year and regularly performs any job function which is an exempt duty performed by an executive, professional or administrative employee.

The problem is that many states have failed to fully adopt this exemption. For example, Hawaii does not recognize the highly compensated employee exemption. Rather it has its own version, which excludes employees that receive a guaranteed weekly minimum salary of $2,000.00. The effect of this is that, while an employee who receives a significant amount of his or her compensation in the form of commissions or bonuses may be exempt under the FLSA, the same employee may be entitled to overtime under Hawaii’s law if he or she does not have a weekly salary of at least $2,000.00.

Other states, such as Pennsylvania, refuse to recognize the highly paid exemption altogether. This poses continuing problems for employers that innocently rely on this exemption and do not check to see if it is valid under state law. The overtime claim of even one employee who is making six figures a year can be staggering. Make sure to check your local laws before assuming that your highly compensated employees are not entitled to overtime.

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The root of many lawsuits seeking unpaid overtime wages is company misclassification of workers as independent contractors. One such suit recently filed against Northwestern Mutual Life Insurance Co. seeks $200 million dollars for a proposed class.

Many companies have historically misclassified employees as independent contractors, often due to genuine confusion over conflicting government rules and court decisions in this area. However, the motivating factor is sometimes an effort to avoid overtime pay requirements, payroll-related taxes, employment benefits and other obligations.  

The federal and many state governments are recognizing that misclassifying workers as independent contractors denies the workers protections under the wage and hour laws, precludes such benefits as workers’ compensation and unemployment insurance payments, and denies protection under some non-discrimination laws. In response, these government entities are enacting new legislation and stepping up enforcement of existing regulations to ensure that workers are properly classified.

• In early June 2009, Colorado enacted a new law that will impose harsh penalties—up to $5,000.00 per employee for a first offense and up to $25,000.00 per employee for subsequent violations—on employers that misclassify employees as independent contractors. 
• Maryland has instituted the similar Workplace Fraud Act which will go into effect in October 2009. 
• States such as New York and Massachusetts have created multi-agency task forces to effectively route out worker misclassification.  

At the federal level, the IRS is in the midst of a misclassification crackdown. Also, it is expected that new federal legislation will be taken up by Congress that will punish employers for employee misclassification since President Barak Obama sponsored proposed legislation, such as the Independent Contractor Proper Classification Act, when he was a member of the U.S. Senate.

Here are some factors to consider. While different agencies evaluating employee misclassification apply different tests, the issue is generally one of control. In a true independent contractor relationship, the client company (the one receiving the services provided) has a right to judge only the results produced by the independent contractor – not to direct or control any aspect of the mechanics that produce the result. Likewise, a true independent contractor has complete financial control of his or her operation, makes required investments, covers operating expenses and experiences a profit or loss distinct from that of any client. Additionally, the agency addressing the issue will consider factors such as whether the contractor is a separate business entity that holds itself out to the general public by advertising its services, is separately incorporated, has its own bank account and possibly its own general liability insurance.

More and more workers who had been classified as independent contractors are claiming that a former client company should have classified them as employees, and thus owes them back overtime pay. Because they considered these workers independent contractors, such companies often have no records of hours worked by these individuals, which greatly limits their ability to defend themselves in the multi-million dollar lawsuits many are now facing.

Thus, given the increased attention to this area, all businesses would be wise to be more careful than ever when using workers classified as “independent contractors.”

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