The goal of our newsletters is to alert our clients and colleagues as to key areas of compliance in managing their enterprises. The largest exposure in the last five to ten years continues to be litigation Department of Labor audits regarding employers payment of wages. By educating employers in this area, our goal is to save our clients and colleagues avoidable substantial back wages, legal fees, and hefty penalties.
Given the complexity of wages and hours law, it is easy for most employers to be non-compliant in one area or another in paying its employees. And the numbers quickly add up. The most common mistakes include overtime violations; cash payments that do not withhold proper taxes to the government; and workers that are misclassified as independent contractors or as exempt employees.
We defend employers in this area and believe that by educating clients, we can reduce the chances of these claims occurring. This article will review the very high exposures involved and recommend steps every employer can take to avoid liability in this area.
Damages and Fees
In these cases the plaintiff bar has a coveted asset: the government awards attorneys’ fees to the prevailing party. In these situations most plaintiffs will draw a very substantial settlement, given that non-compliance can add up, often with multiple overtime periods over the course of years. This often occurs when the employer did not maintain proper time records. As a result, there are typically weak, if any, defenses, and almost all cases settle. The question is typically how much the claims will cost the employer; not whether the employer can fight the allegations.
In addition to attorneys’ fees, the plaintiff can be awarded “liquidated damages,” a penalty equal to the entire amount of the back wages: the employer often has to pay double. To make matters even worse, in New York, the authorities can go back six years. In New Jersey, the State can go back two years for claims of unpaid minimum wages and overtime, and six years for all other claims.
Workers’ Compensation and Unemployment
Sometimes the employer will receive a letter from the Workers’ Compensation Board, demanding many thousands of dollars in fines and penalties due to the misclassification of an employee as an independent contractor. There are so many instances like this, the New York Workers’ Compensation Board is currently ten months behind in evaluating employer explanations.
Often when an “independent contractor” completes his or her project, an employer will get an Unemployment Insurance claim from the particular State Unemployment Division, with a questionnaire that is very detailed regarding the “contractor’s” working hours and supervision by the employer. The employers often have a hard time defending their position that the individual was a true independent contractor, as opposed to an employee. The State Department of Labor can find the employer liable for back deductions to cover the required Unemployment Insurance contributions.
All Employers Can Be Affected
There is no threshold amount of employees necessary to be covered by the wages and hours laws. Every employer can be vulnerable.
An added benefit to the individual filing a claim is that once workers get involved in these cases they are immediately protected by the anti-retaliation laws. Employers have to be especially cautious before taking any disciplinary action against employees who are involved in allegations involving minimum wage and overtime.
New Trend: Follow-Up Audits
In our practice we have detected a new tactic taken by the New York State Department of Labor. The Department of Labor has been recently conducting “follow-ups” on employers who have had past issues, in an effort to ensure continuing compliance. This makes it especially important for employers to not only resolve these matters, but to take the appropriate steps to comply with these regulations.
What A Smart Employer Can Do
There are ten steps an “educated employer” can do to prevent wages and hours claims.
The message to all employers: Be mindful of the rules in this costly area of liability and take reasonable steps to prevent your organization from exposure.