Protect yourself

Part 1: Combatting the rise of wage-and-hour lawsuits

by ANKIT H. BHAKTA

This is the first part of a two-part series on this topic. Look for the second half to be published in November.

Given the rise of multi-plaintiff wage-and-hour lawsuits across the nation, employers must face the reality that it’s when, not if, they’ll get hit with one of these lawsuits. In addition to the drastic increase in the number of wage-and-hour class action lawsuits filed – with a leading publication citing a 500% increase in federal court filings of wage-and-hour class and collective actions from 2000 to 2019 – the settlement value of cases has similarly skyrocketed. Class action settlement numbers totaled $1.34 billion in 2019, $1.58 billion in 2020, and a whopping $3.62 billion in 2021. Time will only tell what’s in store for 2022.

Let’s take a look at three common pitfalls for violations of wage-and-hour laws.

1. MISCLASSIFYING EMPLOYEES
There has been a concerted, nationwide effort to push back on employers’ classification of workers as either exempt employees or as independent contractors. On the federal level, the Department of Labor hasn’t been shy about its efforts to enact pro-employee laws, beef up enforcement agencies, increase the minimum wage, and revoke Trump-era, pro-employer policies. Earlier this year, Dr. David Weil was nominated by President Biden to return as the U.S. Department of Labor Wage and Hour Division Administrator. Dr. Weil has been an outspoken critic of the gig economy and believes workers are often misclassified as independent contractors. Employers pushed back against this nomination and were rewarded when, on March 30, 2022, the U.S. Senate voted down a cloture motion, resulting in Dr. Weil’s withdrawal from consideration for the position.

This was a rare win for employers who have been ceding ground to new wage and hour requirements and employee-friendly tests for the classification of employees, such as AB5 in California. Providing a breakdown of federal and state law requirements for classifying workers as independent contractors (as opposed to employees) or for classifying workers as exempt employees (as opposed to nonexempt employees) would turn this article into a treatise. The distinctions are highly factintensive and vary based on the jurisdiction and industry involved. In short, every hotelier should re-evaluate its independent contractor- and exempt-employee classifications, with the assistance of legal counsel, to ensure potential exposure on a misclassification claim is minimized. The consequences of misclassifying employees can be significant and can result in six- or even seven-figure potential exposure – even for small or midsize employers.

2. FAILING TO PROPERLY PAY MINIMUM/OVERTIME WAGES
Paying minimum wages for all hours worked and proper overtime wages seems obvious, but the law is highly technical, and many employers are unknowingly in violation. Paying minimum wages for all hours worked means making sure employees don’t work off the clock and are paid for all hours worked, even if it comes down to a minute. Having employees go through security measures, change into uniforms, boot up computers, etc., before clocking in or after clocking out can all be grounds for unpaid wages claims.

In addition, despite the improvement of time-keeping technology, many employers continue to use rounding policies with respect to employee time punching. Although neutral, two-sided rounding policies can be lawful in certain scenarios, they are only lawful if rounding “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” When time records are actually analyzed, they often do result in an underpayment to employees, so switching to minute-to-minute is recommended for most employers to ensure compliance.

Finally, as a reward for good work performance or to incentivize particular types of shifts, many employers dole out bonuses or other incentive pay to employees. Unless the bonus payments meet the requirements necessary to be excluded from the regular rate of pay (i.e., a purely discretionary bonus), such additional payments must be attributed over a bonus earning time period. A common misconception is that overtime law requires payment of 1.5 times the employee’s base hourly rate (for time and a half). However, the law actually states that the employee be paid 1.5 times the employee’s regular rate of pay. Because the “regular rate of pay” factors in all payments made to the employee during the pay period (except for specified exclusions), any overtime payments to employees that don’t take into account extra bonus or incentive pay likely results in an unlawful underpayment of wages.

3. FAILING TO ADHERE TO ADDITIONAL STATE LAW REQUIREMENTS
Although federal wage and hour laws set minimum requirements for employers, state and local authorities can and often do set more stringent requirements. In California, for example, the above wage and hour claims are often paired with a failure to provide accurate, itemized wage statements and failure to provide required meal and rest periods, among a few others. Failing to adhere to your state or local wage and hour requirements, or even failing to properly document such compliance, is another hotspot for legal liability and exposure.

In next month’s issue, we’ll wrap up this topic by discussing best practices hoteliers can implement to help minimize their exposure to these lawsuits.