The Top Three FLSA Mistakes Made by Employers
From time to time, new issues arise with regard to the Fair Labor Standards Act (“FLSA") and how an employer must pay its employees. The FLSA was first drafted in 1932, and many of the issues employers deal with today relate to positions that only developed in the last few decades (for example, I filed a lawsuit a few months alleging a Network Systems Analyst failed to meet the FLSA’s administrative exemption). Then there are new arguments asserted on old issues, such as determining if an employee is entitled to pay for “on-call time" when he or she is required to carry a company issued mobile phone and respond to emails. And occasionally we see truly innovative arguments asserted by employers, such as a case I recently handled where the owner of a seafood restaurant argued that his waiters were exempt pursuant to a supposed “fish unloaders" exemption. See 29 U.S.C. § 213(a)(5) (while the statute provides that an employee is exempt when employed in a business involving the “unloading" of fish, the Court was not convinced that restaurant waiters were intended to be included within this group).
However, the above are examples of exceptions to the rule. In practice, employment attorneys are rarely surprised by the FLSA violations they discover. Both in the legal opinions we read and the cases we litigate, the same FLSA violations haunt employers over and over again. Accordingly, I have put together a list of “top three" FLSA violations seen in my practice. While the FLSA is complex and nearly impossible for an employer to understand without trained legal guidance, avoiding the following three mistakes will certainly go a long way towards ensuring full FLSA compliance.
Number 1: Paying an employee a “salary" makes them exempt from the FLSA’s overtime laws.
This seems logical. Overtime is paid at the rate of 1.5 times the employee’s regular hourly rate. (that is, if the employee earns $10 per hour, the overtime rate is $15 per hour). Therefore, many employers believe that if an employee is paid a “salary" (as opposed to hourly), they are not entitled to overtime.
There are two main points to address here. First, you will notice that I have placed the word “salary" above in quotations. That is because “salary" is a defined term under the FLSA. Simply paying an employee $450 per week is not a salary for FLSA purposes, and any employee paid in this manner would be entitled to overtime pay for all hours worked over 40. First, the FLSA currently provides that an employee must be paid at least $455 a week to be considered salaried. Second, even if an employee is paid over $455 per week, there are a number of things an employer can do to defeat an employee’s salaried status; for example, taking deductions from a salary for days on which the business is closed due to inclement weather or docking an employee’s salary for failure to return company property.
Second, not only must an employee be paid on a salary basis (as defined by the FLSA), but in order for the employee to be exempt from the FLSA’s overtime requirements the employee must also meet the “duties" requirements of the FLSA. This generally means that the employee must be employed in either a “professional," “administrative," or “executive" capacity. And, once again, these are all legally defined terms. In order to determine whether an employee falls into any of these categories requires a careful investigation of each employee’s job duties, and consolation with an attorney who has expertise in the FLSA is highly recommended.
Number 2: Allowing employees to take their meal break at their desk.
The FLSA requires that all non-exempt employees be paid for all time that they are “suffered or permitted" to work. See 29 C.F.R. § 785.11. However, when an employee is completely relieved from all work related duties, such as during their lunch break, they are generally not entitled to receive compensation. See 29 .C.F.R. § 785.19.
Seems straightforward enough. However, if an employee is asked to do any work during any part of their meal break (or, in some cases, even if an employee voluntarily elects to perform work) the entire meal period could be considered “working time" and compensable under the FLSA. This could involve something as simple and innocent as asking an employee to eat at his or her desk, to take an item to the post office during lunch, or merely asking them to cover the incoming phone calls (even if the phone never actually rings).
Over the course of time, the wages an employer could potentially become liable for as a result of employees working through lunch quickly adds up. Particularly if this practice is occurring throughout the employer’s business and with an entire department of employees. And keep in mind, if the employee is already working 40 hours per week, the employee would be able to recover for unpaid lunches at their overtime premium rate.
Number 3: It’s the industry standard!
Adhering to industry standards will not insulate you from liability under the FLSA. A quick Google search will instantly bring up results reporting on the hundreds of millions of dollars businesses have had to pay because they followed standard industry practices when compensating their non-exempt employees. And keep in mind, once your industry has been exposed as one which follows a practice which violates the FLSA, your business will have a target on its back for both the Department of Labor and private attorneys seeking to file civil suits. Accordingly, while business owners often mistakenly believe that following the industry standard provides them with a defense, it often actually results in the employer become more, not less, vulnerable to those who prosecute FLSA claims.
And that’s my list of the top three FLSA violations I see in my practice. However, every situation is fact specific. Employers must always consult with their attorneys regarding their unique circumstances. Also, keep in mind that additional state or local laws may impose further obligations on you and your business.
Business owners or employees who have any additional questions about the FLSA or any other issues which might arise in the workplace are welcome to contact attorney Judd G. Millman. Mr. Millman is licensed to practice law in both Maryland and Texas, and his practice focuses exclusively on employment law. He regularly counsels both employees and employers on the myriad of legal issues which arise in the workplace, including issues relating to working-hours and properly compensating employees for regular and overtime hours. He can be reached directly at (410) 522-1020, or at [email protected].