This year marks the 75th anniversary of passage of the Fair Labor Standards Act. Enacted in 1938, in the midst of the Great Depression, the overtime provision of the FLSA was intended by President Franklin D. Roosevelt and Congress to be a job-creation statute. The thinking was that if employers were required to pay employees a premium for hours worked over 40 a week, they would instead hire more workers. With the advent of collective bargaining and employer-sponsored fringe benefits (including health plans) in subsequent decades, however, it became more cost-effective for employers to attempt to comply with the law’s byzantine regulatory framework than to hire more workers.
The FLSA requires that employees whose job duties do not meet a narrowly defined exemption be paid overtime compensation for hours worked over 40. Like so many laws passed with the best of intentions, the FLSA has spawned myriad unintended consequences. The workforce of today (increasingly mobile, technology-based and service-oriented) bears little resemblance to the assembly-line workers that dominated 75 years ago.
The law’s archaic and complicated regulatory scheme has, not surprisingly, created an environment ripe for litigation. In the last several years, plaintiffs’ attorneys have systematically targeted employers of almost every size and type (both nationally and locally) for FLSA lawsuits. There are now more FLSA lawsuits filed each year than any other kind of employment-related claim. Since these claims are almost always brought as purported class actions, a finding of liability can be financially crippling to an employer.
There are typically two types of FLSA claims:
- Misclassification, alleging that the employer has incorrectly treated employees as exempt from overtime, and
- Off-the-clock, alleging that the employer has failed to pay non-exempt employees for all hours worked.
Opportunistic and ever-vigilant plaintiffs’ attorneys screen clients for these claims, in part because they stand to receive a hefty contingency fee if they prevail-all of it paid for by the employer. Truth be told, employment defense lawyers like me also have done well defending against these claims, because the litigation process is often long and complicated. In other words, lawyers, not employees, tend be to the big winners-certainly not something FDR and Congress had in mind 75 years ago.
Employers who are sued immediately face a Hobbesian choice: settle potentially questionable claims early with consequent financial loss, which could be substantial, or pay the costs to defend the suit when the ultimate outcome is uncertain and potential loss exposure is high. Something needs to give.
The FLSA should be amended to add two safe harbors. First, the exemption from overtime should have a simple salary test. If employers pay employees a guaranteed amount-for example, $75,000 a year-to cover all hours worked, employees should be exempt from overtime pay, irrespective of their job duties. Currently, there is a $100,000 annual exemption, but it still has a duties-based component (and it is not recognized by many states).
This first amendment, which would avoid intensive duties-based analysis, would be welcomed by all. Most employees want to be treated as exempt; they simply don’t like punching a clock every day and enjoy the flexibility of leaving for appointments, etc., without having to clock out. Likewise, employers would welcome the operational flexibility and budgetary certainty that salaried exempt employees provide.
The second amendment would apply to non-exempt employees: Any employer that instructs employees to report all of their time worked and provides avenues for employees to complain if they are not paid for all time worked should be accorded a presumption of innocence.
Currently, when an employee fails to record all of his or her time worked for whatever reason, plaintiffs contend that the employer should be liable for that time because the employer knew (or reasonably should have known) that the time was worked and unpaid. This theory creates challenges in the modern workplace and places an unfair burden on employers. The proposed safe harbor puts the individuals who are in the best position to know when they worked in a position to record that time: the employees.
These simple proposed amendments would not only cut down on burdensome and costly litigation but would improve employee morale and go a long a way to restoring basic fairness to the Fair Labor Standards Act.
Stephen J. Jones is a partner in the Rochester office of Nixon Peabody LLP. He leads the firm’s labor and employment class action team.
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