Cleaning your Clock

In February, Overland Park, Kan.-based Bank of Blue Valley settled a lawsuit filed by former loan officers claiming they weren't paid for overtime hours.

The amount of the settlement was $1.1 million. The bank also spent nearly a quarter of a million dollars defending itself, according to Blue Valley Ban Corp.'s annual report filed in March with the Securities and Exchange Commission.

The case was one of several dozen similar lawsuits filed by Kansas City, Mo., firm Stueve Siegel Hanson Woody in the last four years. The firm has made lawsuits alleging overtime and wage violations one of its focal areas, said George Hanson, partner with Stueve Siegel. "It's a big part of what we do as a firm."

Hanson's firm is following a national trend. In a disturbing development for employers, employees are increasingly filing suit alleging violations of the Fair Labor Standards Act (FLSA) and accompanying state laws.

"FLSA actions have almost doubled over the last six years," according to Paul J. Siegel, Long Island, N.Y., attorney and national coordinator for the employment law firm Jackson Lewis' wage and hour group. "And that's not even counting the state lawsuits."

The federal suits are typically collective actions (and the state suits are generally class actions) with groups of employees seeking wages for meal and rest time periods, suing over expenses that have not been reimbursed or claiming minimum wage and overtime violations by their employers.

As Armstrong Teasdale lawyer Robert Kaiser sees it, the increase in the number of collective actions results from the same financial dynamics that fuel class actions. Kaiser, based in St. Louis, defends companies in employment cases, including wage and hour cases. On July 14, he settled Dewberry vs. Product Management in federal court in Massachusetts.

"From a practice perspective, the damages in a Fair Labor Standards Act case tend to be relatively small," he said. "We're not talking about people getting forty and fifty thousand dollar judgments; it could just as easily be a two or three thousand dollar judgment. That may make it not as attractive to an attorney even though there is a fee provision in the law. ... On the other hand, if you've got a hundred people who've got two or three thousand dollar claims, then all of a sudden it becomes that much more attractive."

Value increase

As the number of claims has increased, the value has grown as well, as potential plaintiffs are no longer just service employees such as wait staff or retail workers, but now include higher-paid employees like stockbrokers.

William E. Hannum, an employment lawyer at Schwartz Hannum in Andover, Mass., said that FLSA claims are now included as "a standard part of any kind of employment lawsuit."

Donna Harper, a partner in the St. Louis plaintiffs firm Sedey & Harper, said FLSA suits are attractive because the plaintiff's burden of proof is less than that of a traditional employment discrimination lawsuit.

"I think under the Fair Labor Standards Act, what plaintiffs attorneys see is an avenue to represent employees that doesn't have all that baggage with it because you don't have to show intent," she said. "Intent is pretty much irrelevant under the Fair Labor Standards Act and the collective action arena."

Statistics from the federal judiciary document the increase. Just under 2,000 FLSA suits were filed between March 31, 1999 and March 31, 2000, while 3,464 were filed in the 12 month period ending March 31, 2005.

Missouri hasn't yet seen a similar increase-there were 18 FLSA suits filed in the Western and Eastern districts in the 12-month period ending March 31, 2006, the same number as were filed between March 31, 1999 and March 31, 2000.

Hanson said the FLSA area was "relatively novel" in the state before Stueve Siegel started filing the cases.

The lawsuits still are rare enough that few defense attorneys in Missouri focus on them. Michael Blumenthal, who mediates employment cases, said the defense attorneys he sees in mediation for the lawsuits over wages frequently are from out-of-state firms, either boutique labor and employment firms, or big firms with very large labor and employment practice groups.

The trend is still in its infancy in Missouri, but is increasing rather than decreasing, said Blumenthal, who also is managing partner of the Kansas City office of Constangy Brooks & Smith. "Many plaintiffs' lawyers are looking at the pool and deciding whether to dip their toe into it. The area is technologically intense and document intense, and that will scare off many lawyers who are comfortable with their practices."

While high-profile companies like Target, sued this month by janitors in Texas and Oklahoma, are facing the FLSA lawsuits, a wave of lawsuits filed by Missouri lawyers in the two years seems to show the start of the trend here. In the last two months, Stueve Siegel sued Tyson Foods Inc., pharmaceutical company Sanofi-Aventis U.S. and Spartan Computer Services Inc. Home Depot is fighting a lawsuit filed by Mark Jess and other Kansas City attorneys in 2004. Shughart Thomson & Kilroy has two cases pending in state courts against Wal-Mart Stores Inc. over wages that allegedly were reduced for breaks that weren't taken and off-the-clock work.

Regulations and publicity

The reasons for the national increase in the cases are somewhat unclear.

Employment lawyers suggest that Department of Labor regulations that went into effect in August 2004 increased publicity and heightened awareness about the potential for wage and hour violations.

The regs, which were intended to limit the number employees seeking overtime, may have had just the opposite effect, Hannum suggested.

A sophisticated plaintiffs' bar recognizes the potential, Blumenthal said. "With the 2004 regulation changes, they took 60 years worth of ambiguous interpretation and created a fresh ambiguous interpretation begging to be litigated."

The unanimous U.S. Supreme Court ruling November 2005 in IBP Inc. v. Alvarez also had an impact, Hanson said. The ruling said that employees should be paid for the time spent putting on and taking off protective gear and walking to their stations, a principle Stueve Siegel has followed in several of its cases in various industries, from call centers to pharmaceutical companies. Hanson argues that employees should be paid for the time it takes to boot up a computer and read materials, or to put on sterile gear for work with medicines.

Another factor, according to Cathy Ruckelshaus, litigation director at the National Employment Law Project in New York, is that the private bar has stepped in where public entities have failed to enforce the law.

"Traditionally, the DOL or state labor departments have enforced labor laws, but due to a lack of funding or political will, the private bar has really taken on the mantle of responsibility," she said.

Kaiser, too, has seen an increase in the number of private suits but not an increase in the number of DOL actions. "That may reflect the fact that more people are going to lawyers and lawyers are recognizing the problem," he said.

Ruckelshaus claims employers became emboldened to work around the law when word got out that there was virtually no public sector enforcement.

"A big trend we've seen is labeling workers as independent contractors, even if the job itself hasn't changed, so that employers are no longer responsible for following minimum wage and overtime laws," she said.

Increased public awareness of employees' rights in the workplace is leading to more cases, Hanson said. "The cases like the ones we've been bringing in the region have been getting media attention."

Hannum suggested the economy could be a factor in the increase.

"The economy hasn't fully recovered from where it was before 9/11, so you have to wonder if employers are squeezing employees trying to get more productivity for less money, resulting in wage and hour law violations," he said.

But some defense lawyers wonder if the plaintiffs' bar might be overreaching.

"Claimants and attorneys read about these giant settlements and think, 'I can do that, too!'" Siegel, who practices in New York, said. "There are some plaintiffs' attorneys who are beginning to specialize in the FLSA."

The attention being paid to the FLSA cases is getting to be a bit much for Rick Paul, a Shughart Thomson & Kilroy attorney who has been working on the two Missouri cases filed against Wal-Mart in 2001 over alleged off-the-clock work. Paul said he doesn't intend to file any more, as other lawyers have filed 28 similar lawsuits against Wal-Mart in several states.

State to state

The FLSA is a "minefield" that many employers have been walking, Blumenthal said. Unlike with discrimination claims, the act doesn't involve questions of intent, holding employers strictly liable for violations. The burden of proof rests on the employers, and there is an "egregious multiplier" factor - if one employee is not being correctly paid, that multiplies to many employees.

"The fact that plaintiffs' lawyers have started viewing these cases as lucrative opportunities is not a surprise to me," Blumenthal said.

While lawyers debate the reasons for the lawsuits, the way to prevent them is clear.

"Employers must be fully aware of the wage and hour requirements of both federal and state law," Siegel said. "To only have a national focus without a local understanding is potentially disastrous."

Some states track the FLSA completely, but others contradict federal law, making things complicated for employers who operate in multiple states.

"An employer could be in complete compliance with federal law and yet be in violation of some provision of state law," said Michael J. Hassen, a class action defense attorney at Jeffer Mangels Butler & Marmaro in Los Angeles.

For example, New York and the District of Columbia both have a higher rate of minimum wage pay than the national standard, while others, such as Florida, have linked their minimum wage to the consumer price index, which is adjusted each year.

States such as Colorado, Illinois, Kentucky and Nevada also have overtime rules that differ from the federal regulations.

And California, a state frequently cited by employment lawyers for its unique wage and hour laws, requires that non-exempt employees be paid overtime for both hours in excess of 40 each week and hours in excess of eight each day.

Complicating the issue even more, states differ on the forms of additional compensation — such as bonuses or incentive pay — that are to be included in overtime pay.

National companies can be easily tripped up by the state-to-state differences, Hannum said, especially when it comes to classifying certain mid- to low-level employees.

"Managers are typically the area where employers make mistakes, because they can often be exempt under federal law and then non-exempt under state law," he explained. "And one small little difference can trip a lot of problems."

Checking classifications

In the Home Depot lawsuit filed in U.S. District Court in the Western District of Missouri, assistant store managers claim they were misclassified as exempt from federal overtime requirements. That claim in the lawsuit was joined in June with other lawsuits with the identical allegation for a nationwide group of assistant store managers pending in a New Jersey federal court.

"The issue over exempt status or nonexempt status is an issue that companies need to constantly review and re-review," Kaiser said. "Jobs change. Status changes. Technologies make certain jobs change. And responsibilities change over time. And companies do need to make sure that just because they pegged something as being exempt in 1976 doesn't still mean it's true."

"[Employers] need to know what's going on at the lowest level of the organization," said Harper. "They need to make sure the supervisors are doing what they're supposed to be doing. That's true even in the civil rights and employment discrimination arena. What you frequently find is the problem isn't with the written policies. The problem isn't with the highest levels of the organization. The problem is the implementation and follow-through on a day-by-day basis in the operations of the company."

Ideally, employers should review each employee's job description and classification on an annual basis and make sure that everyone is classified properly under both state and federal law.

Hassen, who has written about the increase in suits on his Class Action Defense blawg (http://classactiondefense.jmbm.com), said employers often find themselves committing violations accidentally.

"An employee may be assigned to a certain position, but in practice, his work may evolve into something else, switching him from exempt to non-exempt, and an employer may not even realize it," he said.

Siegel agreed.

Because the classifications in the regulations often create "artificial distinctions," a quick glance at an employee's job description won't solve the problem, he noted, urging employers to conduct in-depth audit of payroll records and employees' daily tasks to search for potential violations.

If the results of the audit are still unclear, Siegel suggested employers request an opinion letter from the DOL.

Actually changing employees' classifications can be just as complicated, Hannum said.

"For example, if you make an announcement to employees who were previously exempt that they will now be getting paid overtime, you are going to get a couple of reactions," he cautioned. "Some people will be thrilled that they will be getting more money, but others will ask, 'Why wasn't I getting it before?'"

Employers concerned about reimbursing employees for back pay if they were incorrectly classified might hesitate to re-classify them, Hannum said. "It could be really expensive to pay all of those employees, and an employer may not be able to write out such a big check, so it may procrastinate performing an audit."

"People get compensated in a lot of different ways - not just a salary or a particular hourly wage," said Kaiser. "There's all kinds of bonus systems, incentive plans that are out there. And I think that oftentimes [with] the desire to make sure people are being fairly compensated, ... there's not always a legal review of how does that compensation plan fit in within legal requirements.

"It's not that people are doing things in order to evade the law, but I think they may not always be aware that there is a legal implication," he said.

In addition, Hannum said cultural and societal norms may affect employees' reactions to their change in status.

"I've noticed even with our own firm hiring practices that some candidates are unhappy about being paid on an hourly basis instead of being salaried," he said. "For some people, it's a status symbol to have an exempt, salaried job, even if it means less money for them."

Additional reporting by Heather Cole and Donna Walter.

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