V.32 Symposium (Misclassification): Recap of Panel No.2

by Jacqueline A. Smith

Does Your Employer Owe You an I.O.U.?

Employers that have at least two employees, and revenue of at least $500,000 in annual sales or business, are subject to the Fair Labor Standards Act (“FLSA”).[1] The FLSA creates additional guidelines for the employer in the interest of protecting employees’ rights.[2] The extent of an employee’s rights often hinge on their classification in the employer-employee relationship, i.e.: part-time versus full-time, independent contractors, etc.[3] The FLSA classifies employees into one of two categories to determine their eligibility for overtime payments: exempt and non-exempt.[4] This classification is significant because non-exempt employees are entitled to overtime payments, whereas exempt employees are not.[5] Due to dense and confusing case law on the subject, many employers wrongfully classify their employees as exempt.[6] Thus, many employees are paid less than they should be, and many employers are vulnerable to litigation and damages based upon the misclassification.[7] In fact, most large employers, including many big-box retail stores, have been hit with litigation based on the exempt versus non-exempt classifications, and most have been forced to pay back-wages based on lost overtime.[8] Employers may argue three primary categorical exemptions that their employees may fall under: executive, administrative, or professional.[9] If the employer prevails in proving that their employee falls under one of these categories, then the employee is exempt from overtime wages.[10]

For many years, big retailers were the primary target of misclassification claims; however, there has recently been a rise in “mom-and-pop” stores as the named defendants in such cases.[11] Many employers wrongfully believe that their employees are exempt from overtime wages merely because the employee is paid a salary; the fact that an employee is salaried is not determinative of their classification and can lead to major liability issues.[12] This problem commonly arises in the cases of retail managers.[13] For example, an assistant manager at a supermarket who regularly works over forty hours a week, is a salaried employee, and who spends the majority of their work time in nonsupervisory roles stocking shelves, would likely be deemed to be a non-exempt employee and qualify for overtime pay.[14] Many employers would wrongfully conclude that since the employee is salaried and holds the title as an assistant manager, the employee should be categorized under the executive exemption and not qualify for overtime.[15] But even with the many tests the courts have put forth, the bottom line is usually – what are the daily tasks of the employee?[16] As explained in the example, the assistant manager was primarily conducting non-supervisory work, and thus, that is an important factor to consider for whether an employee qualifies under the executive exemption.[17] An employer needs to carefully consider and monitor the work of their managers in order to determine whether they qualify as an exempt employee.[18] The classification of an employee as exempt or non-exempt hinges on the primary duties of that employee, the employee’s role in management, any concurrent duties of the employee, and the employee’s supervisory authority.[19]

Damages may be significant in misclassification cases, especially in light of the rise in class and collective action cases.[20] Money damages are calculated based on one of two methods in misclassification cases, either under the fluctuating work week method, or the non-fluctuating work week method.[21] Under either calculation the loss of pay and resulting damages can be thousands of dollars per year for the average salaried employee.[22] In New York State, an employee may receive damages for miscalculated pay, looking back six years.[23] Furthermore, if the employee wins, the employer must pay for the employee’s attorney’s fees. [24]

The problem is further complicated because in the case of store managers, if the employer misclassified the employee as exempt, the employer likely does not have time records for that worker because they were paid on a salaried basis.[25] The panelists urged that even if the employer thinks their employee is exempt it is recommended that the employer keep time records of the employee, because otherwise the court will accredit the employee’s version of hours worked.[26]

[1] Justin Marino, Associate, Littler Mendelson, P.C., Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Holly Rich, Associate, Littler Mendelson, P.C., Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).

[10] Id.

[11] Marino, supra note 1.

[12] Id.

[13] Rich, supra note 9.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Marino, supra note 1.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Irv Miljoner, Dist. Dir., U.S. Dep’t of Labor/Wage and Hour Div., Long Island Dist. Office, Justin Marino, Associate, Littler Mendelson, P.C. & Holly Rich, Associate, Littler Mendelson, P.C., Speakers at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).

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