Posted on February 26th, 2018
The number of unpaid overtime claims is on the rise, and these claims can be detrimental for employers.
Read this article for tips on dealing with them.
You think your business is in clear water — until you get sued for unpaid overtime. Whoops.
Thanks to new U.S. laws, many employers are getting slammed with these lawsuits, like Schneider Logistics, which settled for $21 million!
This was a class action lawsuit but even a single claim can cause big headaches and losses for smaller employers.
Make sure you don’t get caught in an ugly situation. Here are five ways you can avoid or deal with overtime claims against your business.
1. Get Crystal Clear on Overtime Laws
This applies before you get a lawsuit and during the lawsuit.
You need to know the overtime laws.
And it’s not just one set: You need to know your state laws as well as federal law and how it applies to different classifications of workers to make sure you’re following all of them.
Key fact: California overtime laws and federal overtime laws are not interchangeable.
It’s Not Like Federal Overtime
If you think federal overtime and California overtime are similar laws, that unpaid overtime lawsuit is really going to bite you.
Under the Fair Labor Standards Act (FLSA), employees covered under the Act must receive overtime pay for hours above the 40-hour workweek at a rate of at least one half their regular pay.
This applies on a workweek basis but doesn’t require overtime pay for Saturdays, Sundays, holidays or regular days of rest, unless the employee was working overtime hours on those days.
So if they haven’t met their minimum workweek requirement under federal law, you don’t have to pay them overtime for holidays.
Oh, and by the way? Under federal law, there is no limit on the number of hours an employee aged 16 and over can work during a workweek.
How It Works
So you thought the federal law was all you had to worry about?
Well not so fast. You are in California and you know our laws are always more complicated.
And surprise: California law is actually more advantageous to employees than federal law.
California is notorious for pro-employee labor laws, and putting increased cost and burdens on the employers.
You need to be familiar with the Federal laws and the California laws. That way you can see which is more stringent (almost always California) and make sure you are following the correct standards.
2. Get Clear About Worker Duties and Hours
If everyone knows the rules, it’s a lot easier to play by them.
That includes you.
For example, there’s a big difference between a contractor and an employee. The most important here is that they shouldn’t be classified the same way.
Not sure what the difference is?
Here are just a few key questions:
- Does your company or the employee determine how they spend their time?
- Do they have employee benefits, like a pension?
- Are business aspects of the relationship controlled by payer or employee?
- Will the relationship continue beyond this specific project?
Answering these questions makes it clearer you’re looking at a contractor or an employee, and that will change how you should classify them.
BUT please note that California has an extremely high burden of proof to what they consider an independent contractor. In only the most obvious cases are they going to concede someone as a contractor instead of an employee.
That’s something you should figure out sooner rather than later – if you misclassify and lose, you’ll be saddled with paying back wages and payroll taxes. Also, you’re going to be audited more often to make sure everything’s on the up and up.
3. Exempting Employees
A big mistake a lot of employers make is incorrectly classifying employees as exempt. Huge mistake. It’ll cost you a lot in court.
Here’s the truth: The law assumes that all employees are entitled to overtime pay, which means it’s on you, the employer, to prove otherwise.
Preferably before you get sued for doing it wrong.
What’s important here is making sure you and your employees know exactly what they do for you. That means understanding their exact duties and how that translates into being exempt or non-exempt.
An easy way to do this is to have them track how they spend their time at evaluation.
This will help you classify them appropriately and keep both of you accountable.
4. Get Your Records in Order
The single easiest way to make sure that you avoid (or successfully manage) an unpaid overtime lawsuit?
Thorough and accurate records.
This is the most straightforward way to back up your claims against the claims of your employee. Here’s what you should be doing before and during a lawsuit to make your life easier.
Before a Lawsuit
Files are your best friend.
You should be keeping accurate, up-to-date records on your employee’s name, gender, address, workweek, hourly rate, hours worked, and significant additions or deductions through the last three years.
For all hourly employees. Yes, all of them.
If you don’t have those records, your employee can sue you claiming unpaid hours, and you won’t be able to prove them wrong due to the gap in your record keeping.
Pro tip: it looks suspicious or at least questionable if you have poor record-keeping habits. Don’t be that one.
During a Lawsuit
Your records are your first line of defense. They’re the best evidence you have against your employee’s claims.
So they should all be in order and brought to your lawyer the second you get hit with a lawsuit.
5. Establish a Defense Immediately
This isn’t like going to the dentist. Get it done, and get it done immediately.
What starts out as a single claim can quickly turn into a flood of unpaid overtime claims or a class-action lawsuit.
And if you still need motivation, remember that employees can recover triple damages and all of their attorney fees if they win! Yes you pay the damages. You pay their lawyers fees. And you pay your lawyers fees.
Get in touch with your lawyer. Do not pass Go. Do not do foolish things like make statements before talking to your attorney – any statements you make can and will be used against your business.
Don’t Be a Victim of Unpaid Overtime Lawsuits
Need a lawyer?
We strive to be California’s best resource for employers seeking legal advice on employee and labor issues. You’ve come to the right place.
First, familiarize yourself with 5 major California labor laws (and other useful legal information for employers on our blog).
Then, sit yourself down and book a free 15-minute consultation. You’ll get free, honest, no-commitment legal advice from our top legal professionals, and booking takes less than one minute.
You need to defend your business. Taking a few minutes today to make sure you do.
