Protecting yourself from overtime suits

OldStoryImageAs an employer, you may think you’re free to fire workers when necessary without a hassle, since Florida is a “right-to-work” state. That assumption could be costly.

More and more, fired workers are hiring attorneys to challenge whether their former employers underpaid them for overtime work, say Gainesville labor attorneys Paul Donnelly and Laura Gross. And often, when these suits are filed, “Discharged workers have a hammer over employers,” Gross adds.

The hammer is the federal Fair Labor Standards Act. Its requirements are very specific, and many employers inadvertently violate them, she says. “The law is considered ‘mechanical,’ which means that you may be deemed to have violated the law, even if you paid an employee a significant salary, such as $80,000 a year, or gave the employee a large bonus,” Gross says.

An Ounce of Prevention

To protect yourself from overtime suits, Gross and Donnelly recommend taking steps like these:

Keep good records. “If you don’t have solid records, the employee is free to say anything he or she wants to about how many hours they worked,” Gross says.

Review your policies and payment practices. You want to make sure they follow the law exactly, Donnelly says. “There are so many hidden pitfalls and technical requirements in the law that smaller employers are just unaware of,” he says.

Pay special attention to workers who earn tips. If some of your employees’ pay comes from tips and the employees work overtime, be sure that their overtime pay amounts to one and a half times their normal earnings, including tips, Donnelly advises. Otherwise, you could fall into one of the most common overtime problem areas, says Michael Casey of the law firm EpsteinBeckerGreen in Miami. He says many of the Fair Labor Standards Act suits in Florida have been against smaller employers in the hospitality industry. “I would venture to say that the vast majority of restaurants in Florida are violating the wage-and-hour law with respect to things like tip credit,” he says.

Make sure exempt workers are correctly classified. Determining which workers are exempt from overtime is a headache, Donnelly admits, and just because you pay an employee a salary doesn’t mean that he or she is “exempt.” See the box below for more information on exempt employees.

Don’t confuse employees and independent contractors. You can inadvertently face a challenge on overtime pay if you improperly classify someone as an independent contractor rather than an employee, Gross says. “Often this happens when a new business initially relies upon subcontractors who retain discretion to accept or reject each job,” she says. As the business grows, the company may begin to require regular workers who dedicate all or most of their work time to the company and whose wages, hours, terms and conditions of employment are set by the company, Gross says. “At this point, you need to switch your workforce from subcontractor to employee status or risk a class-wide lawsuit,” she says.

The Settlement Route

If you do end up facing an overtime lawsuit, often settling a challenge is cheaper than fighting it, Donnelly says. With these types of suits, if you lose, you’ll end up paying both the unpaid overtime plus the employee’s legal fees.

“The only way to avoid paying the employee’s legal fees is to prove that the case was frivolous, which is hard to do,” Donnelly says.

Another danger is that a disgruntled former worker may get the word out to other former workers, which could open you up to claims from more than one former employee, he says.

Donnelly says settlements in these types of cases can run from a few thousand dollars to $30,000. Even a relatively high settlement generally is low compared to the attorneys’ fees for both sides if you fight a challenge, Donnelly says.
He uses a case from the 1990s to illustrate the potential cost. He represented the former maintenance director of a nursing home in that case, who was seeking $5,000 in unpaid overtime. “The owner refused to settle and ended up paying $140,000 in attorneys’ costs,” Donnelly says.

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WHO QUALIFIES AS EXEMPT?

In an Inc. magazine article, Nancy Cooper noted that employees who are exempt from overtime must fill specific roles, including serving in executive, administrative, professional/creative professional and outside sales positions.

Cooper provided the following guidelines.

  • Under the executive exemption, an employee’s primary duty must be managing your enterprise or managing one of your departments or divisions. The employee must also direct the work of at least two or more other full-time employees and have the authority to hire or fire.
  • The administrative exemption requires that the employee’s primary duty must be the performance of office work directly related to management.
  • The professional exemption requires that the employee must primarily perform work requiring advanced knowledge, meaning the work that is predominantly intellectual in character and consistently involves exercising discretion and judgment.
  • The creative professional exemption requires that the employee primarily must perform work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
    To qualify for the outside sales exemption, the employee must primarily make sales away from your place of business.

These classifications aren’t as straightforward as they may seem, Cooper said. “Each term has its own special meaning, and in the end, there is no simple, clear-cut definition,” she said. “Determining if your employees are appropriately classified depends a lot on individual duties and job performance,” she says. “It may change over the years, depending on how the job evolves.”

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