FLSA wage and hour lawsuits & guidance from risk

FLSA wage and hour lawsuits & guidance from risk

FLSA Wage and Hour Cases & Guidance: Wage and Hour cases have increased in the past few years.  Not only have the number of court cases  increased, but the punitive damages and criminal charges have caused employers to pay attention to FLSA Fair Labor Standards Act and Federal Regulations.  In several recent cases, the government has penalized company owners and officers for failing to pay overtime, enforcing rigid fines and even imprisonment. 

In one case, the president of a Minnesota sheet rock company was sentenced to two years in jail and a potential fine of $3.3 million for intentionally underpaying employee overtime, union pension and benefit contributions.  See specifics about Malcolm et al. v. Franklin Drywall below. 

In the second case listed below, the owners and officers of an Illinois security company were fined over $200,000 in back wages and liquidated damages for violating overtime and record keeping provisions.   Under the Fair Labor Standards Act (FLSA), “any employer” who violates minimum wage or unpaid overtime compensation laws may be liable for both the shortfall and liquidated damages, which means double the damages.

1. FLSA Case 1

Here are more specifics on how Malcolm et al. v. Franklin Drywall case listed above:

* Case Information is from the US Department of Justice.

Business and Charges:  In 2011 the owner and president of Franklin Drywall, a union sheet-rocking company based in Little Canada, pleaded guilty in federal court in St. Paul to one count of providing a false statement to two labor union pension and benefit funds in connection to a scheme to underpay employees for overtime and to underpay the union funds for pension and benefit contributions required by collective bargaining agreements.

Federal prosecutors asked the court to order Franklin to pay nearly $3.3 million in restitution. S. District Judge Donovan Frank said he’d consider the request and rule later.  “This sentencing shows that the Labor Department is committed to ensuring that justice is served for those who steal from their workers,” James Purcell, acting regional director of the U.S. Department of Labor’s Employee Benefits Security Administration office in Kansas City, said in a statement. “We continue to aggressively investigate those who steal from plan participants and their beneficiaries through our Prevailing Wage Regional Project.”

Admission of Guilt: Franklin admitted to filing false reports to Minnesota Carpenters Pension and Benefit Funds and the Painters and Allied Trades District Council No. 82 Pension and Benefit Funds. Franklin was indicted on May 11, 2010.  While conducting business in Minnesota, Franklin Drywall was bound to the terms collective bargaining agreements with the Lakes and Plains Regional Council of Carpenters and Joiners, the Painters and Allied Trades District Council No. 82 of Minnesota, and the International Union of Painters and Allied Trades. Under the terms of those agreements, Franklin Drywall was required to pay into applicable pension and benefit funds specified amounts of money for each hour worked by any employee in a job classification covered by the agreements.

FLSA Wrongdoing: Employees of Franklin Drywall were eligible to receive benefits from those funds if they retired, became disabled, or were terminated. Relatives could also receive benefits from the funds upon an employee’s death.

In his plea agreement, Franklin admitted that in order to evade payments into the pension and benefit funds, he directed employees of Franklin Drywall to falsify time sheets and submit false information to the union pension and benefit funds that materially under-reported the hours worked by Franklin Drywall union employees. Franklin also admitted that he routinely directed Franklin Drywall administrative employees to report to the pension and benefit funds no more than 40 hours of work per week for Franklin Drywall union employees, regardless of the number of hours actually worked by the employee.

To evade reporting and paying fringe benefits for the number of hours actually worked, Franklin directed that employees who worked more than 40 hours would be paid for excess hours on a separate paycheck at the straight hourly rate, rather than the overtime rate; or would be paid for excess hours at the straight hourly rate on paychecks marked as “other pay.”

He further admitted that from January through December of 2006, he evaded payment of at least $190,000 owed to the pension and benefit funds.

ERISA Wrongdoing: Moreover, he admitted knowing that the information he provided to the union pension and benefit funds would be used by the funds to compile reports required by the Employee Retirement Security Act of 1974 (“ERISA”), and that by submitting reports to the funds that falsely reported the number of hours worked by employees and the contributions that Franklin Drywall owed to the fund, the reports required by ERISA contained false information. 

*Investigation by the Office of Inspector General and the Employee Benefits Security Administration of the U.S. Department of Labor.

So you are probably thinking…my company would never take part in those behaviors.  You are probably right, but here is a case that is more common to businesses.  The company had always used independent contractors.  They may not have been aware of the strict FLSA regulations on status of employee versus contractor.   Unfortunately, this lack of information caused fines and costly company restructuring.

2. FLSA Case 2

In Illinois, the owners of a security company were fined over $200,000 for violating overtime and record keeping provisions. In the case, the Department of Labor accused the International Detective & Protective Services owners of mis-classifying fifty-seven security guards under FLSA as independent contractors in order to avoid paying them overtime.

The judge in the case noted that the defendants tried to classify the guards as independent contractors through an employment contract. “Such an effort to avoid responsibility under FLSA to pay overtime premium is ineffective,” the judge wrote in the ruling. “Defendants violated the FLSA and therefore are liable for unpaid overtime compensation.”

3.  FLSA Investigations and Penalties

If workers are eligible for overtime, they must be paid at least one and a half times their regular rate of pay for the time they work over 40 hours in a week. But determining who qualifies for overtime (non-exempt) versus who doesn’t qualify (exempt) can be difficult, and employers often run into trouble.

The Wage and Hour Division of the Department of Labor conducts investigations of alleged FLSA violations. When the Department of Labor decides a company is not in compliance with FLSA, there are numerous ways employee back wages can be recovered:  The Wage and Hour Division may supervise payment of back wages; The Secretary of Labor may bring suit for back wages and an equal amount as liquidated damages; An employee may file a private suit for back pay and an equal amount as liquidated damages, plus attorney’s fees and court costs; and The Secretary of Labor may obtain an injunction to restrain any person from violating FLSA, including the unlawful withholding of proper minimum wage and overtime pay.

When it comes to recovery of back pay, there is a two-year statute of limitations, except in the case of a willful violation, where the statute of limitations is three years. When employers are found to willfully violate FLSA, they can also face criminal prosecution and fines up to $10,000. Upon a second conviction, employers could face imprisonment.

4.  Checklist:  Staying Out of FLSA Trouble

Employers should do the following to ensure they are paying workers properly: 

  • Classify Employees Properly
  • Know State Laws
  • Employers should consult with legal counsel to understand who may be liable for overtime infractions, so they can plan accordingly.
  • Review Payroll Practices and Job Classifications
  • Conduct Audits
  • Be Particularly Careful with Union Employees (as the case above clearly demonstrates)

FLSA wage and hour lawsuits & guidance from risk


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