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The Fair Labor Standards Act; And the Myths of Exempt Employees

Posted by attorney Ryan Nalley

The U.S. Department of Labor estimates that nearly 70% of all employers are operating in violation of the Fair Labor Standards Act of 1938 ( ("FLSA").

Under both the FLSA and the and the Illinois Minimum Wage Law ("IMWL"), an employer is required to pay his employees 150% of their regular rate for each hour worked over 40 during each work week; otherwise known as "overtime." The Illinois Wage Payment and Collection Act is simply an Illinois statute that requires an employer to pay an employee as promised, and helps to curtail wage theft.1

It is typical for employers who wish to avoid complying with the relevant overtime laws to engage in a variety evasive tactics, such as improperly classifying employees so they appear to fall within certain exemptions from the statutes, or by disguising wages as reimbursements or bonuses--to name just a few of the less sophisticated tactics. While there are legitimate exemptions, in my experience they are less prevalent than many imagine. Moreover, it is the employer's burden to prove an employee's exempt status.

One of the most common misconceptions employees have is that if they are paid on a salary basis then they are exempt from the overtime time provisions of the ("FLSA") or the ("IMWL") under the guise of being a "professional employee," "administrative employee," or a "managerial employee," otherwise known as the "white collar exemptions." This is simply not true! In reality, very few positions meet the eligibility for exemption under the "white collar" exemptions. Moreover, being paid on commission or salary does not exempt an employee from the protections of these laws.

Further, under the FLSA when an employee is underpaid for overtime his employer not only must compensate the employee for all past due wages for the two year period prior to filing your case but he must pay an additional equal amount in liquidated damages for such wages. Thus, an employer will owe the employee double the amount originally underpaid--unless the employer can convince the court that they acted in good faith. This is an extremely difficult burden for an employer to prove; and it can literally be said, as a matter of law, that liquidated damages are presumed. Under the IMWL there are no liquidated damages, however, the employer will be liable for 2% of all underpayments for each month the employee was under paid for the three years prior to the employee filing suit. (Thus, if you are a separated employee, filing your case as quickly as possible is essential as you will lose potential damages for every week prior to filing your case). .

However, the biggest penalty an employer may face for an FLSA or IMWL violation is the collective or class Action. Usually when an employer fails to pay one employee properly, there are others in the midst, and who are eligible to opt in to the lawsuit as a party Plaintiff (or in Illinois they will automatically be made a party unless they opt out); and this creates a strong incentive for the employer to pay his employees according to the law, as the figures of unpaid wages and penalties often end up in the millions. Moreover, at the end of such actions, the original class representatives (the first Plaintiff who stuck his or her neck out, and put in the time and effort on behalf of the class, can petition the court for extra compensation which they deserve for their efforts.)

Additionally, both the FLSA and IMWL mandate that an employer found in violation of either law is liable to compensate an employee for all costs, and more importantly attorneys fees. The employer will be liable for such fees even though the employee is usually (depending on the lawyer the employee has hired) not required to pay any hourly attorney fee. Nevertheless, the employer will still be required to pay for all the hours the attorney or attorneys have invested in the case, despite that the client is not required to pay the attorney for such hours. This gives the employer a huge incentive to agree to a settlement rather than risk having to pay thousands upon thousands in attorneys fees in addition to the past due overtime, liquidated damages, and costs of litigation. This, makes such cases affordable for virtually any employee or former employee to bring such suits against their employer with little to no costs in the long run.

Despite these penalties, violations of these statutes remain extraordinarily commonplace--presumably because employers and employees either believe they are exempt from the law, or because they know employees are too afraid of retaliation ever to complain. However, the FLSA has extremely strict penalties to prevent an employer from retaliating against employees who assert their rights under the law. Moreover, the Illinois Whistle Blower Act ( also protects an employee who files a complaint against their employer.

The reason for these provisions is that the bringing of private lawsuits help with the enforcing of the FLSA and Illinois Minimum Wage Law, which in turn improve the economy. Both Congress and the Illinois General Assembly have created a cause of action that allows virtually any victimized employee to afford to bring forth a cause of action in a court of law. Thus, both the federal and state governments encourage employees to assert their rights under the federal and/or state wage and hour laws in a court of law. Bringing suits for unpaid overtime wages is not an attack on small businesses or the struggling economy, it is quite the opposite!

It should also be mentioned that, even though the federal and state governments, have set up administrative agencies to enforce such laws, such agencies are backlogged and, in my experience, often have precisely the opposite effect of their intended function. For example, in a number of instances, the employee who files a claim with the Illinois Department of Labor ends up with either nothing or a small fraction of what he or she was owed because the statute of limitations expires while the case is in line to be investigated. When the employee discovers that the agency has either decided not prosecute his or her case, or has done a substandard investigation, it is too late for such employee to bring his or her own cause of action in a court of law. An employee must understand that, in the case of the Illinois Department Labor, the department represents the State of Illinois, not the specific employee. Further, such agencies have an interest in clearing their case load, and in my extensive experience, it is almost guaranteed that a substandard and inaccurate investigation will be conducted.

Thus, if an employee has any realistic expectation of receiving the wages and/or overtime wages that he or she is owed, plus the required monetary penalties, retaining an attorney with experience in wage and hour laws is essential. As explained before, it ultimately costs very little to nothing to the employee in the end to do so, depending on the attorney that the employee chooses to retain. If you are working over 40 hours a week and not receiving time plus one half of your hourly rate for each hour over 40, or are otherwise not being compensated for work performed, despite what your employer or your employee handbook claims about your status; or if you are being paid in an unnecessarily complicated and strange manner, you might very well be owed overtime wages.

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