By Hollie Reiminger, Of Counsel, Houston, Fisher Phillips
As organizations ring in 2021 with smaller budgets and an eye toward cost-cutting measures, it is a good time to reflect on the recent wage and hour developments to proactively manage the anticipated increase in federal lawsuits. Claims brought under the Fair Labor Standards Act (FLSA) — specifically collective actions — will be prevalent in the new year in light of at least three key developments: a flurry of changes made to the FLSA by the U.S. Department of Labor in 2020; the unprecedented number of reductions-in-force due to COVID-19-related business disruptions; and the rise in new wage and hour dilemmas created by the increase in telework arrangements.
The Fair Labor Standards Act had a watershed year in 2020 as the DOL implemented at least several new final rules and issued 21 opinion letters interpreting the statutory requirements. These developments are actually good news for employers. They provided much-needed clarity regarding white-collar exemptions and permissible payments to employees. However, with such clarity comes a pressing need to re-evaluate employee exemption classifications and pay practices to ensure compliance with the current state of the law. The age-old principle “ignorance of the law is no excuse” applies with full force to employers in the wage and hour context where even small unintentional missteps can turn into costly and time-consuming lawsuits.
In addition, the rise in pandemic-related workforce reductions in 2020 will inevitably lead to more and larger FLSA collective actions in 2021. Employees and contractors who were seemingly happy with their pay and status during employment often join such lawsuits when the effects of their separation set in and money becomes tight. In addition, the possibility of recovering liquidated damages in addition to the allegedly unpaid wages makes the prospect of joining all the more enticing for individuals in financial straits. A separated employee or contractor can easily join an FLSA collective action by simply signing a consent form with little obligation to actively participate in the action. Moreover, employers that obtain severance agreements from departing employees are not insulated from FLSA awards to such individuals, as a general release of claims will usually be ineffective at releasing claims for unpaid wages under the federal law.
Moreover, the shift to telework arrangements has presented unique challenges for employers in tracking and managing employee work hours and overtime work. These challenges, in particular, are on the DOL’s radar. The agency issued an August 24, 2020 field assistance bulletin reiterating employers’ obligations to exercise reasonable diligence in tracking teleworking employees’ hours of work. In addition, the DOL issued an opinion letter just last week discussing the unique wage and hour questions presented by telework and flexible work hours. The letter clarified under what circumstances employee travel in the middle of the work day must be paid. If employers are not carefully monitoring when and where their employees are working, it will be much more difficult to respond to their later claims that they worked off-the-clock hours for which they were not paid or that they were improperly deducted for meal breaks that they never took.
What Can Employers Do?
As employers continue to grapple with this new world order in 2021, it is important to be proactive when it comes to FLSA compliance. The impact of layoffs done in 2020 may not be fully felt for months to come as the statute of limitations for FLSA claims is two years (and can be extended to three years if the violation is found to be willful). While little can be done to stave off claims by those already-departed employees and contractors, an ounce of prevention now with current workers can keep those lawsuits from growing in size and number in the future.
While, as a general matter, the likelihood is greater that former employees and contractors will initiate or join collective actions, current employees and contractor can (and often do) participate in collective actions as well. Participation by current employees and contractors has the added complication of increasing the potential for retaliation claims against the organization. This puts management in the position of having to ensure that there are no negative ramifications for such individuals’ participation in the FLSA lawsuit. And the practical reality in these times is that a current employee today may be a former employee tomorrow — as the possibility of additional staff reductions looms large for many employers as we head into 2021.
In light of these circumstances, you should revisit your pay practices now and take steps to get ahead of these lawsuits:
- Audit Exemption Classifications and Pay Practices to Ensure They Comply with the FLSA Requirements. With all of the recent changes made to the FLSA, it is imperative that you take another look at your exemption classifications, independent contractor classifications, and pay practices to ensure that your classifications are accurate and that employees are being paid appropriately for all compensable time worked. Even a small mistake can be surprisingly costly depending on the number of individuals affected and how long the mistake went undetected.
- Set Clear Parameters for Remote / Telework Arrangements and Discipline Violations. Now more than ever before, you need to clearly communicate your expectations to employees and diligently monitor remote employee work hours to ensure that employees are being paid for all compensable time work. Any violations of these expectations should be promptly addressed as a disciplinary matter. Note that employees must still be paid for all compensable time worked even where the work was done in violation of company policy or expectation.
- Take Advantage of Contractual Collective Action Waivers and Arbitration Agreements. Recent developments in the federal courts over the last few years have provided employers with a roadmap for minimizing the risk of FLSA collective actions through use of carefully crafted collective action waivers and arbitration agreements. The only way to reap the benefits of those particular developments in the law is to be proactive instead of reactive.
In sum, taking time to ensure FLSA compliance now will benefit organizations for years to come. It will put you in the best position possible to stop costly and time-consuming FLSA collective actions before they can get off the ground.