BY Patrick M. Dalin, Of Counsel, and Kevin Troutman, Partner, Fisher Phillips
For several years now, healthcare employers—including hospitals, nursing homes, and home healthcare companies—have been top targets of both government investigations and private lawsuits for wage and hour claims. The federal wage and hour law, the Fair Labor Standards Act (“FLSA”), requires employers to pay a minimum wage and overtime to their employees. Most states also have statutes requiring the payment of minimum wage and/or overtime. The United States Department of Labor (“USDOL”), which enforces the FLSA, has identified healthcare as a “high violation industry,” and in 2021, conducted 1,194 investigations of healthcare employers—placing it in the top four industries targeted for investigation.
In addition to government investigations, the FLSA permits employees to bring private lawsuits against employers. Employees typically bring claims not just on behalf of themselves but on behalf of a “collective” of employees, which, depending on the size of the employer’s business, can be a very large group. Therefore, through the powerful multiplier effect of collective action, the complaint of one employee can lead to a large judgment on behalf of many employees. Being a labor-intensive industry that employs a large number of workers, the healthcare industry is a prime target of the plaintiff’s bar for these types of lawsuits.
The costs of a wage and hour lawsuit can be steep. Under the FLSA, employers can be ordered to pay up to three years of back wages to large groups of employees. In addition, the FLSA provides for liquidated damages that typically double the amount of back wages due. Employers may also be made to pay the employees’ attorneys fees and costs. On top of all of these costs, if the USDOL is involved, it can issue additional civil money penalties. Beyond the steep civil liability, the FLSA also provides for criminal prosecution of employers, including individual managers who are involved in an employer’s wage and hour policies and practices.
Certain allegations are particularly common in the healthcare industry, including employees working during their unpaid lunch breaks, insufficient pay for compensable travel time, and not including nondiscretionary bonuses (such as shift differentials) in an employee’s regular rate when computing overtime compensation. These are specific compliance issues that are commonly targeted in healthcare employer cases—and all healthcare employers should be aware of them. But, more broadly speaking, healthcare employers should be cognizant of a broader, more fundamental issue at the heart of many wage and hour lawsuits: employee classification. Employee classification can be broken into two distinct issues: 1) are the workers your employees? and 2) if the workers are your employees, are they exempt from coverage under the FLSA?
Are the Workers Your Employees?
A worker can, under the FLSA, be considered your employee even if you issue the worker a 1099 or the worker signed an independent contractor agreement. Courts will look beyond those formalities and examine the worker’s day-to-day duties. Ultimately, the court will be concerned with how much control the business exercises over the worker and how much independence and judgment the employee exercises in the performance of his duties. For instance, the court will look at who sets the worker’s schedule, who has authority to direct the worker’s work, whether the worker invests in her own tools and equipment, the degree of skill needed to perform the job duties at issue, how long the worker has worked for you, whether or not the worker solicits work from other employers and the degree to which the worker’s work is geared towards delivering your core products and services (as opposed to performing work on secondary support functions). Many cases are litigated over this very issue. If you believe that a worker is an independent contractor, you should make sure that most of these factors point toward the independence of the employee. If they do not, a judge or jury would likely find that the worker is your employee.
Are Your Employees Exempt from Coverage under the FLSA?
There are numerous provisions in the FLSA that exempt certain employees from the Act’s requirements. The three most common are what is known as the Executive, Administrative, and Professional (“EAP”) exemptions. Each of these exemptions relieves an employer of the minimum wage and overtime requirements of the Act.
Each of these exemptions has two core requirements: 1) a salary basis test and 2) a primary duties test. An employee’s job must satisfy both tests in order to meet the exemption. To satisfy the salary basis test, the employee must be paid a salary amounting to at least $684 per week. It’s important to note that the Department of Labor has indicated that it will likely increase this amount sometime in the near future.
Employers commonly make the mistake of believing that an employee is exempt from the minimum wage and overtime requirements merely because they pay the employee a salary. A salary alone, however, is not sufficient to establish an exemption. The employee’s primary job duties must also meet the requirements of at least one of the exemptions. Importantly, in evaluating the job duties requirement, the employee’s job title is not what matters. Where an employee’s job duties depart from his job title or written job description, it is the employee’s job duties that will control the analysis.
For the professional employee exemption, an employee’s primary work duties must involve work requiring advanced knowledge, defined as work that is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science and learning and must be of the type typically obtained through a prolonged course of specialized instruction. Employees in the health care setting who tend to meet this exemption are doctors, laboratory scientists, and registered nurses. Employees such as licensed nurse practitioners, nursing assistants, and respiratory therapists typically do not meet the exemption.
To meet the administrative employee exemption, an employee’s primary duties must involve office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and the employee must exercise discretion and independent judgment with respect to matters of significance. Employees who may meet this exemption include office managers, accountants, financial analysts, computer network managers, and human resources personnel, to name a few examples.
To qualify for the executive employee exemption, an employee’s primary duties must concern managing the enterprise or managing a customarily recognized department or subdivision of the enterprise. In addition, the employee must manage two or more full-time employees, and either has the authority to hire, fire, promote and discipline employees or have her suggestions and recommendations for hiring, firing, promoting, and discipline of employees be given particular weight. Typical examples include high-level executives as well as managers of discrete departments or divisions of the enterprise.
Concluding Thoughts
The big takeaway is that healthcare employers can save a lot of time and expense in the long run if they actively evaluate their workforce and make a good faith effort to determine whether their workers are properly classified. Remedying any issues once a lawsuit or a government investigation commences will be much more costly.
Determining whether a worker is an employee and evaluating whether an employee is exempt from the FLSA’s requirements are very fact-intensive inquiries. These determinations are often further complicated by state laws, which do not always mirror the FLSA. Nevertheless, and although it may seem daunting, employers should periodically audit their workforce to ensure that they are classifying their employees properly. Particularly in the present environment where employee turnover is high, and employers are turning more frequently to third-party staffing solutions, the status of an employer’s workforce may have shifted dramatically since the last time it conducted an evaluation.