May 9, 2012
Nearly 9 million Americans lost their jobs because of the recession, prompting companies to find ways to pick up the slack.
Some of those efforts are clearly paying off for larger companies. S&P 500 firms made an average of $420,000 in revenue per employee in 2011 – 11 percent more than in 2007, a Wall Street Journal analysis found. Other strategies, which stretch the boundaries of the law, are biting back.
A growing number of current and former employees are suing employers in federal courts for wage and hour violations. In 2011, 7,006 wage-and-hour lawsuits were filed in federal courts, most of which were class action cases. That’s up 32 percent from 2008, and a 378 percent increase since 2000, according to an April report from law firm Seyfarth Shaw.
Last week Wal-Mart agreed to pay $4.8 million in back overtime wages and damages to 4,500 current and former store managers at Wal-Mart and Sam’s Club stores and warehouses, and in January drug maker Novartis agreed to pay out $99 million to 7,000 former and current sales representatives. Class action lawsuits waged by former employees of Staples Inc. and Dicks Sporting Goods Inc. ended in those companies agreeing to pay current and former managers $42 million and $15 million in overtime. Similar cases pending against GlaxoSmithKline, Bristol-Myers Squibb Co., and Johnson & Johnson currently await Supreme Court review.
The exploitive practice of pushing existing workers to essentially do two jobs at their own expense has not escaped government scrutiny. The Department of Labor recovered $225 million in back wages for employees in fiscal 2011, up from $176 million in 2010, and added 300 wage-and-hour investigators to its ranks over the past two years.
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“It’s a very lucrative business practice to underpay your workers,” said Catherine Ruckelshaus, legal co-director of the National Employment Law Project, a research organization that advocates for workers. According to Ruckelshaus, while underpayment has been common for lower wage jobs like janitors, construction workers, and home-care workers for years, this recession ushered in an era of employers squeezing higher wage workers as well. “We’ve seen employers sometimes calling higher-wage workers exempt from overtime when they shouldn’t be exempt, or just asking employees to work off the clock because there are fewer workers around to do the same job,” Ruckelshaus said.
A law in place from 1938 called the Fair Labor Standards Act requires employers to pay workers at least the federal minimum wage, which is currently $7.25, for hours worked as well as overtime pay equal to one-and-a-half times the employee’s regular rate for hours worked in excess of forty per work week. Salaried employees are generally exempt from that rule if they are “employed in a bona fide executive, administrative, or professional capacity.” It is up to employers to determine which category workers fall into.
After being laid off or voluntarily leaving their jobs, workers such as retail store managers, pharmaceutical sales representatives, insurance claims and mortgage loan officers, and administrative assistants – who employers have traditionally treated as exempt – are increasingly challenging that status in court, looking to recoup overtime pay and seize on the law’s lack of clarity to wage suits.
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Fewer workers mean exempt employees, like retail store managers and supervisors, increasingly fill in and perform non-exempt work – a trend that is feeding the uptick in lawsuits, legal experts say. But asking a manager to do lower level work that was once done by a non-exempt employee – like copying documents, managing her own calendar, or restocking an empty aisle in store – is not necessarily illegal or even immoral. One reason: The job that was once classified as non-exempt may never come back.
The increased volume of laid-off employees seeking redress for their terminations has led to these lawsuits, said Richard Alfred, chair of Seyfarth Shaw’s National Wage & Hour Litigation Practice Group. In many cases, plaintiffs’ attorneys find the termination may not be grounds for legal action, but that their former employers’ pay practices raise legal questions, Alfred said.
Classifying employees as exempt from the overtime and minimum wage requirements under the Fair Labor Standards Act involves subjective determinations which can lead to second guessing by plaintiffs’ attorneys, said Marc Freedman, Executive Director of Labor Law Policy for the U.S. Chamber of Commerce. “Questions surrounding Fair Labor Standards Act applications are serving as fertile ground for plaintiff’s lawyers. It’s a fairly rich vein of possibilities,” Freedman said.
In many of these instances, employers aren’t intentionally stiffing workers or denying them overtime pay, Alfred said. “They’re trying to compensate employees fairly and according to legal requirements, and they’re struggling to get it right because the wage and hour laws are ambiguous in many respects,” said Richard Alfred, chair of Seyfarth Shaw’s National Wage & Hour Litigation Practice Group.
Alfred points to the conflicting positions different federal courts have taken regarding whether pharmaceutical sales representatives should be considered exempt or non-exempt as prime examples of why employers are in a tough spot. The Second Circuit’s ruling in the Novartis case that sales representativess are non-exempt conflicts with recent decisions in the Third Circuit, Ninth Circuit and an Indiana district court that found in separate cases against drug makers Sanofi Aventis, GlaxoSmithKline, and Eli Lilly that sales reps should be considered exempt.
“You have these different decisions all over the country, so how does a national employer with pharmaceutical sales representatives in the Second Circuit, the Third Circuit, and the Ninth Circuit deal with this issue?” Alfred said. “It puts companies in a very difficult position of having to make decisions with uncertainty that can lead to the risk of enormous, potentially catastrophic exposure for damages.”
However, some plaintiffs’ attorneys say the rising number of suits reflects the rising tide of companies’ deliberately finding ways to deny overtime pay in an economy where they recognize that workers have few opportunities to complain or quit. “The fact is, the majority of employers who violate overtime laws do so intentionally and consider it, if they get caught, just a cost of doing business,” said Daniel Katz, a Maryland-based attorney who is representing workers in class-action suits overtime lawsuits against Comcast and DirecTV.
The Labor Department acknowledges that employers may have difficulty deciding which employees are overtime-eligible, but says it’s an employer’s responsibility to come to them with questions. “They can give us a call at 1-866-4-USWAGE,” said a Labor Department official who spoke with The Fiscal Times. “Or we certainly can guide them to materials on our website to explain what the test (for exemption) is so that they can be informed when making that determination.”