Employment Law
Wage and hour violations can lead to stiff fines

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© 2003 North Bay Business Journal

BY ELIZABETH HURT
STAFF REPORTER

NORTH BAY -- There's not much scintillating about wage and hour law. But when oversights can result in multimillion dollar lawsuits -- such as the $90 million awarded in 2001 against Farmers Insurance Exchange by an Alameda County Superior Court jury for not paying overtime to claims adjusters -- employers quickly learn the importance of understanding the nuances.

And in California, where the Department of Industrial Relations seems to have found more fine-toothed combs to inspect companies' practices, it's especially important to make sure your bases are covered.

"We are seeing a real focus by the Labor Commissioner as more employees are saying they are not getting overtime because the classification of their job has been done incorrectly," says Teresa Cunningham, an employment lawyer with Gaw, Van Male, Smith, Myers & Miroglio in Napa.

On the federal level, there has also been increased enforcement of wage and hour laws by the U.S. Department of Labor. In 2001, Fair Labor Standards Act enforcement collected $143 million in back wages for FLSA violations, which represents a 29% jump from 2000.

Exempt or not?

The issue pivots on whether an employee is "exempt" or "non-exempt." And unless employers regularly review their classifications for the various jobs at their companies, they could be unwittingly paying technically non-exempt workers as exempt workers and failing to pay them overtime.

Ignorance is rarely a valid excuse, points out Ms. Cunningham.

"The Labor Commissioner is taking a strict interpretation of how the categories should be defined," she says. "The employees are favored in these types of disputes. Once an employee files a claim, you often have 10 more behind them."

The main categories of exempt employees are executive, administrative, professional, outside sales, and miscellaneous. While that may seem straightforward, there are specific requirements that must be met, such as an executive must customarily and regularly direct the work of two or more employees. Or, for to qualify for the executive, administrative, and professional exemptions, the employee, among other things, must be paid a salary equivalent to at least twice the minimum wage for full-time employment. For the outside sales exemption, the employee must customarily and regularly work more than one-half of their working time away from the employer's place of business.

To make matters even more confusing, the U.S. Department of Labor recently published a proposal to "modernize" its 50-year-old regulations defining exemptions. The changes include revising job duties required to qualify for the exemption to better correspond to 21st century workplace realities. The Department of Labor estimates the changes would guarantee overtime pay for 1.3 million more low-wage workers.

While the class action suits against larger companies have drawn headlines, Ms. Cunningham says she is concerned for smaller and mid-size companies that don't have a dedicated person to oversee the complicated issue.

"This is an opportunity for employers to go back and look at job classifications and review whether they are correct," says Ms. Cunningham.

Meal breaks

Dawn Ross, an employment lawyer with Carle, Mackie, Power & Ross in Santa Rosa, says Department of Industrial Relations audits have also resulted in companies being cited for violating the relatively new regulation regarding meal breaks. And that can also add up: For every meal break that was not properly documented (and therefore considered not taken), the employer must pay the employee one additional hour of pay at the employee's regular rate of pay.

"Now that the law has been in effect for a couple of years, they feel sufficient time has passed, and everyone should know about it," says Ms. Ross. "But a lot of my clients are not familiar with it."

Or, while some understand the gist of the law, they are not tuned in to the importance of making sure the meal break is clearly indicated on the time sheet.

"If they have given lunches, but it wasn't noted, the presumption now is that the employee did not get the break," says Ms. Ross.

According to the law, employees are entitled to a minimum of a 30-minute meal period for every five hours worked. Employees whose total work period is not more than six hours may agree to waive the meal period. But if, according to the law, an employer "fails to provide" a meal period, the employer must pay the extra hour.

"Often, employees will say they don't want to take lunch and will just leave a half-hour early," says Ms. Ross. "But that's no longer permissible. Employers must make it mandatory for employees to take the 30-minute lunch near the middle of the day, even if they beg you to let them work through lunch."

When the Department of Industrial Relations audits a company, it carefully goes through personnel records, interviews employees about when they clock out, whether they actually leave after they clock out, etc. The Department of Industrial Relations will often look at records going back three years, and any past oversights with former employers can be tallied up.

"If you have an employer with 50 employees, and you think about an hour a day for every day over the past three years, that's a lot of money," says Ms. Ross.

One employee filing a complaint usually spurs an audit. Such complaints, especially from terminated workers, are more common in down times.

"When the economy was thriving, people were leaving their employers to go to better paying jobs," says Ms. Ross. "But now, if they are terminated, it takes so long to find another job that they will file claims they might have otherwise ignored."