The Growth in Wage-and-Hour Claims

Recent Cases

Here is a smattering of the most recent FLSA cases:

• Wal-Mart recently agreed to settle 63 nationwide wage and hour lawsuits. The company agreed to pay as little as $352 million and as high as $640 million, depending on the claims filed. These cases ran the gamut of alleged improper work practices, such as denying overtime payments and falsifying payroll records through “time shaving,” and requiring employees to work “off the clock.” A class of over 100,000 employees of California Wal-Marts was also awarded $172 million by a jury for being denied 30-minute unpaid lunch breaks. Employees alleged, and the court agreed, that management would deny meal breaks to employees or pressure the employees not to take meal breaks.
• Alltel was recently sued by current and former customer service representatives alleging the company violated FLSA by failing to include earned sales commissions and bonuses in calculating workers' overtime pay. Alltel also allegedly failed to add the commission paid to hourly compensation in order to determine the plaintiff's regular rate in each work week.
• A federal judge has preliminarily approved an $8 million settlement that FedEx reached with California plaintiffs in two suits accusing the company of failing to provide meal and rest breaks. Plaintiffs claimed that FedEx frequently refused to turn off the conveyor belts where the employees worked at times that would allow for the breaks.
• ConAgra Foods hourly employees recently filed a lawsuit against the food company in federal court in Missouri. The lawsuit alleges that ConAgra violated the FLSA by failing to pay hourly employees for the time they spent dressing for work and walking to the employee time clock.
• Sprint Nextel agreed to settle three class-action lawsuits for $8.8 million. The lawsuits claimed that the company did not permit employees to record their work time and instead gave them time sheets showing they worked 40 hours a week, even if they worked more.
• Tipped waiters at a Maui Westin have filed a class action against their employer, alleging that the company failed to pay employees their tips. The allegations state that the company charges a “service charge” on food purchased at the hotel. However, the company does not pay this to the waiters. A $35 million verdict was recently affirmed for Family Dollar store managers. The court affirmed that these managers were not entitled to the “executive exemption” to overtime pay because they did not customarily and regularly direct the work of two or more other employees.
• Former AT&T customer service representatives filed suit claiming that AT&T violated the FLSA by requiring employees to come to work early to “boot their computers,” but failing to pay the employees for that time.
• Staples, Inc. recently settled an FLSA class action brought by assistant store managers, who were improperly classified as exempt when they completed both exempt and nonexempt duties. A court approved the settlement of $38 million for 1,700 current and former assistant managers.
• Alltel was recently sued by current and former customer service representations alleging the company violated FLSA by failing to include earned sales commissions and bonuses in calculating workers' overtime pay. Alltel also allegedly failed to add the commission paid to the hourly compensation in order to determine the plaintiff's regular rate in each work week.
• A number of assistant store managers at retailer Duane Reade Inc. alleged that the company engaged in a pattern of denying overtime to many of its assistant store managers because it misbranded the employees as exempt from the overtime pay requirements under New York labor law and FLSA. This case is currently seeking court approval for a $3.5 million settlement.

The Claims: Common Violations of the FLSA

There are a number of reasons for the increased filing of FLSA claims. Chief among these appears to be a recognition by plaintiffs' lawyers that this is the most lucrative arena. As a result of conservative court decisions over the years, discrimination claims, for instance, have been much harder to win and are far more limited in the types and amount of damages available. An employee who wins an FLSA lawsuit, however, can recover not only back pay for unpaid overtime wages, but also “liquidated” or double damages, plus attorneys' fees. In addition, if the employee can prove that the employer willfully violated the FLSA, which is not hard to do, the back pay recovery period can be extended from two to three years. Moreover, damages extend forward until the employer corrects the FLSA violation. The increased coverage of these large awards and settlements itself increases the number of claims and filings. From the employer perspective, FLSA claims are often hard to avoid and can result in significant payouts. The FLSA and related state laws are often difficult to understand, and cases can take years to complete, which only increases attorneys' fees and potential damages awards. Group claims, in the form of collective actions or class actions, are also the norm.

Employers must also be mindful of the laws of the states in which they maintain any employees. The FLSA preempts state law in the area of minimum wage and overtime pay ' unless the state law is more generous, which is the case in a number of states. Employers, therefore, must go through the exercise of comparing provisions and applying the ones that provide the greatest benefit to employees.

Misclassification of Employees

The most common FLSA violation occurs when an employer misclassifies employees as salaried and fails to pay them overtime for hours worked over 40 in a week To be exempt, the employee must meet two tests: 1) the individual must be employed in one of the designated job categories; and 2) with limited exceptions, the employee must be paid on a salary (rather than hourly) basis. The job categories or “white-collar exemptions” of employees who do not need to be paid overtime include executives, professionals, computer employees, administrators, outside salespeople and certain highly compensated employees. Exempt employees must also generally be paid not less than $455 per week on a salary basis, meaning their salary is not subject to deductions based on the quantity or quality of work. The salary must be a fixed amount that does not depend on how many hours the employee works, how much work the employee accomplishes, or the quality of the work. As long as employees do some work during the week, they are entitled to their full weekly pay. Employers may also not discipline their employees by docking their pay or putting them on unpaid suspension for violating workplace rules.

Executive Employees

In a recent case, a Staples, Inc. assistant sales manager lodged a collective action suit against the office supply chain, claiming it violated the Act by misclassifying its assistant sales managers as executive employees, and failing to pay them overtime wages. According to the complaint, the work performed by sales managers “required little skill and no capital investment. [The managers'] duties did not include managerial responsibilities or the exercise of independent judgment. Rather, it involved many insignificant duties and duties identical to most sales assistants and stock clerks.” The suit alleged that the company's retail model and policies coerced the assistant managers to work overtime hours because they could not allow nonexempt workers to work overtime. One lesson to be learned from this case is that an employee is not exempt from the payment of overtime simply because he or she has a specific job title. To be considered an exempt employee, an employee's specific job duties and salary must meet all the requirements of the federal regulations.

Outside Sales Exemption

A number of lawsuits have been brought by salespersons who have been improperly classified as exempt under the outside sales representative exemption. For example, pharmaceutical sales representatives have brought a number of lawsuits against the largest drug companies, arguing that while described as “sales representatives,” the employees are actually engaged in pharmaceutical product promotion. Because the employees are not actually selling any products, they argue that the outside sales employees exemption is inapplicable.

The outside salesperson exemption is very limited. All of the following requirements must be met to be considered exempt. First, the employee's primary duty must be making sales or contracts for services or further use of facilities for which consideration will be paid by the client or customer. Second, the employee must customarily and regularly spend time in such work away from the employer's place or places of business. Soliciting sales over the telephone or computer from the employer's office, as is often the case today, does not qualify for this exemption.

Travel Time

Employers must also take care in compensating hourly employees for travel time. While commuting to and from work is generally not compensable, other travel time may be. Here are some basic rules for employers to remember when determining whether travel time is compensable:

• Travel time to the worksite may be compensable hours if the employee actually begins working at home (or at some other location prior to reaching the worksite). Lawsuits have been filed in recent years by employees claiming that they should be paid for their commute time because they were required to perform work, such as checking their e-mail or voicemail, before leaving for the workplace each day. Commuting time may also be compensable if the employee is required to perform some work while traveling between home and work. For example, the employee must transport other employees to/from work, or the employee must pick up supplies prior to his/her shift per the employer's request.
• If an employee's primary job activities require the employee to travel to different locations, the travel time must be counted as hours worked.
• Commuting in an employer's vehicle is generally compensable hours worked.
• Emergency situations occur when an employee has gone home after completing his or her day's work and is subsequently called to travel to perform an emergency job. All time spent on such emergency travel is hours worked.
• Time spent traveling to and returning from a one-day assignment away from the employee's home city is work time, except that the employer need not count the time the employee would normally spend commuting to and from the regular worksite. Travel that keeps an employee away from home overnight is work time when it cuts across the employee's regular workday or corresponding hours on nonworking days. Travel away from home that occurs outside the regular working hours, may or may not be hours worked depending on the circumstances.

Breaks and Meal Periods

Under the FLSA, employers are not required to provide meal periods or rest breaks for their employees. However, many states do mandate them, and, even under the FLSA, an employer that provides breaks must determine whether the time is compensable. Generally, breaks less than 20 minutes must be counted as hours worked.

Common violations occur when the employee works through his/her lunch break. Issues also arise if an employer require an employee to “clock out,” yet the employee continues to work. For example, a receptionist is permitted to eat lunch at his desk because he must still answer incoming calls. Whether the receptionist actually receives any calls is irrelevant and the lunch time is compensable. The receptionist is still required to be available for work. Employers must ensure that meal periods and breaks are free from any work if the employers want to categorize that time as unpaid.

'Donning' and 'Doffing'

In 1947, the FLSA was amended to specify that employers need not pay employees for activities that are “preliminary or postliminary” to “principal activity or activities,” including travel to and from the actual place of performance. However, hours within a “workday” still include activities near the commencement or completion of the principal activity or activities and that are “closely related activities which are indispensable to [job] performance.” These “donning and doffing” rules apply to various industries where employees need to get ready to work, including in high-tech clean rooms, chemical plants, chicken farms and perhaps even as to workers who are required to boot-up their computers prior to the start of the work day.

In 2005, the Supreme Court determined that employees who work in meat and poultry processing plants must be paid for the time they spend walking between the place where they put on and take off protective equipment and the place where they process the meat or poultry. The Court held that donning and doffing gear is a “principal activity,” and thus compensable time. The Court also found that any walking and waiting time that occurs after the employee engages in his first principal activity and before he finishes his last principal activity, is part of a “continuous workday.” The Department of Labor further clarified that donning and doffing of required gear is within the continuous workday only when the employer or the nature of the job mandates that it take place on the employer's premises. If an employer allows its employees to change into their “work gear” at home, the time to change into work gear is not compensable whether or not it actually takes place at home.

As a general rule of thumb, activities that occur either prior to or after the time that you end your “principal activities” would not be hours worked. For example, showering at the beginning or end of each workday, for your own benefit and convenience and not directly related to your principal activities, would not be hours worked. There are, of course, exceptions to this rule. When contract provisions, such as a collective bargaining agreement, or custom and practice delineate certain activities as hours worked, employers are required to pay their employees for those activities.

Employee Meetings

Employees are often required to go to lectures and seminars and to attend training programs or company meetings. As a general rule, if the employer requires employees to attend such a meeting at the worksite, the time is compensable. However, voluntary attendance at a training course, outside of the employee's working hours, would not be hours worked. The most common mistake occurs when employers require employees to come to work early for a “mandatory staff meeting,” but tell those in attendance to “not clock in.”

To determine whether a meeting or training session is compensable time, employers should look at four factors:

• Is attendance during the employee's regular working hours?
• Is the employee's attendance required?
• Is the meeting or training directly related to the employee's job? and
• Is the employee performing any productive work while at the meeting or training?

If the employer answers “yes” to any of these inquiries, the meeting or training may be compensable time.

What Employers Can Do to Protect Themselves

Employers can take a number of steps to ensure their compliance with the FLSA. First, employers need to familiarize themselves at least generally with both federal and state wage and hour laws ' and, to remember that state laws are often more rigorous. Second, employers should review their positions and job descriptions to make certain each employee is properly classified as exempt or non-exempt. This is the area where employers most often make mistakes, and can be the most costly if uncovered by a litigious employee or the DOL. Third, employers should complete a review of pay practices to ensure compliance with “salary basis” requirements and that salaried employees are not “subject to” impermissible deductions. Handbooks should include a safe harbor provision to avoid such liability as well. A “safe harbor” is a relatively brief period of time in which employers have the opportunity to correct any improper deductions it may have made from the salary of an exempt employee. This safe harbor is available to an employer only if it first: 1) has a clearly communicated policy prohibiting improper pay deductions; 2) reimbursed employees for any such deductions; and 3) made a good-faith commitment to future FLSA compliance.

Finally, it is a good idea for an employer to conduct an FLSA audit periodically, which is the best and most effective way to determine compliance with the various intricacies of wage payment laws. An FLSA audit may also provide a defense to liquidated damages for those employers who can prove that they had a good faith belief that their pay practices complied with FLSA requirements. To benefit from the defense, the employer must prove that: 1) it actually believed that its practices complied with the FLSA; and 2) its actual belief was reasonable when compared with the beliefs of other employers.

Conclusion

Employers must comply with the FLSA, and should not “go it alone.” The broad rules and regulations associated with employee compensation, as well as the particular state laws, make compliance very difficult. However, with proper legal assistance, employers can ensure compliance and avoid costly litigation.

Andrew M. Slobodien is a partner with Wildman, Harrold, Allen & Dixon LLP (Chicago) and can be reached at [email protected] or 312-201-2284. Stacey L. Smiricky is an associate with the firm.

Much of the recent talk in the mainstream press has been about the Employee Free Choice Act, which would modify union organizing rules, and the Lily Ledbetter Fair Pay Act and the Paycheck Fairness Act, which target gender discrimination laws. However, employers big and small are aware of another recent trend in employment law, and one that has had a far bigger effect than any of these laws are likely to have. This is the Depression-era Fair Labor Standards Act, passed back in 1938.

Most employers know the FLSA as the federal law that requires the payment of minimum wages and overtime to certain workers. This is true. However, the exact requirements of this law are complex, and, hence, the source of the increase in litigation. The number and dollar value of FLSA claims and settlements have jumped enormously in recent years ' it has been reported that FLSA claims have increased over 50% just since 2006.

This article explores some of the most common FLSA issues that employers confront on a daily basis, and ways to avoid being a victim of this FLSA wave.

Recent Cases

Here is a smattering of the most recent FLSA cases:

• Wal-Mart recently agreed to settle 63 nationwide wage and hour lawsuits. The company agreed to pay as little as $352 million and as high as $640 million, depending on the claims filed. These cases ran the gamut of alleged improper work practices, such as denying overtime payments and falsifying payroll records through “time shaving,” and requiring employees to work “off the clock.” A class of over 100,000 employees of California Wal-Marts was also awarded $172 million by a jury for being denied 30-minute unpaid lunch breaks. Employees alleged, and the court agreed, that management would deny meal breaks to employees or pressure the employees not to take meal breaks.
• Alltel was recently sued by current and former customer service representatives alleging the company violated FLSA by failing to include earned sales commissions and bonuses in calculating workers' overtime pay. Alltel also allegedly failed to add the commission paid to hourly compensation in order to determine the plaintiff's regular rate in each work week.
• A federal judge has preliminarily approved an $8 million settlement that FedEx reached with California plaintiffs in two suits accusing the company of failing to provide meal and rest breaks. Plaintiffs claimed that FedEx frequently refused to turn off the conveyor belts where the employees worked at times that would allow for the breaks.
• ConAgra Foods hourly employees recently filed a lawsuit against the food company in federal court in Missouri. The lawsuit alleges that ConAgra violated the FLSA by failing to pay hourly employees for the time they spent dressing for work and walking to the employee time clock.
• Sprint Nextel agreed to settle three class-action lawsuits for $8.8 million. The lawsuits claimed that the company did not permit employees to record their work time and instead gave them time sheets showing they worked 40 hours a week, even if they worked more.
• Tipped waiters at a Maui Westin have filed a class action against their employer, alleging that the company failed to pay employees their tips. The allegations state that the company charges a “service charge” on food purchased at the hotel. However, the company does not pay this to the waiters. A $35 million verdict was recently affirmed for Family Dollar store managers. The court affirmed that these managers were not entitled to the “executive exemption” to overtime pay because they did not customarily and regularly direct the work of two or more other employees.
• Former AT&T customer service representatives filed suit claiming that AT&T violated the FLSA by requiring employees to come to work early to “boot their computers,” but failing to pay the employees for that time.
• Staples, Inc. recently settled an FLSA class action brought by assistant store managers, who were improperly classified as exempt when they completed both exempt and nonexempt duties. A court approved the settlement of $38 million for 1,700 current and former assistant managers.
• Alltel was recently sued by current and former customer service representations alleging the company violated FLSA by failing to include earned sales commissions and bonuses in calculating workers' overtime pay. Alltel also allegedly failed to add the commission paid to the hourly compensation in order to determine the plaintiff's regular rate in each work week.
• A number of assistant store managers at retailer Duane Reade Inc. alleged that the company engaged in a pattern of denying overtime to many of its assistant store managers because it misbranded the employees as exempt from the overtime pay requirements under New York labor law and FLSA. This case is currently seeking court approval for a $3.5 million settlement.

The Claims: Common Violations of the FLSA

There are a number of reasons for the increased filing of FLSA claims. Chief among these appears to be a recognition by plaintiffs' lawyers that this is the most lucrative arena. As a result of conservative court decisions over the years, discrimination claims, for instance, have been much harder to win and are far more limited in the types and amount of damages available. An employee who wins an FLSA lawsuit, however, can recover not only back pay for unpaid overtime wages, but also “liquidated” or double damages, plus attorneys' fees. In addition, if the employee can prove that the employer willfully violated the FLSA, which is not hard to do, the back pay recovery period can be extended from two to three years. Moreover, damages extend forward until the employer corrects the FLSA violation. The increased coverage of these large awards and settlements itself increases the number of claims and filings. From the employer perspective, FLSA claims are often hard to avoid and can result in significant payouts. The FLSA and related state laws are often difficult to understand, and cases can take years to complete, which only increases attorneys' fees and potential damages awards. Group claims, in the form of collective actions or class actions, are also the norm.

Employers must also be mindful of the laws of the states in which they maintain any employees. The FLSA preempts state law in the area of minimum wage and overtime pay ' unless the state law is more generous, which is the case in a number of states. Employers, therefore, must go through the exercise of comparing provisions and applying the ones that provide the greatest benefit to employees.

Misclassification of Employees

The most common FLSA violation occurs when an employer misclassifies employees as salaried and fails to pay them overtime for hours worked over 40 in a week To be exempt, the employee must meet two tests: 1) the individual must be employed in one of the designated job categories; and 2) with limited exceptions, the employee must be paid on a salary (rather than hourly) basis. The job categories or “white-collar exemptions” of employees who do not need to be paid overtime include executives, professionals, computer employees, administrators, outside salespeople and certain highly compensated employees. Exempt employees must also generally be paid not less than $455 per week on a salary basis, meaning their salary is not subject to deductions based on the quantity or quality of work. The salary must be a fixed amount that does not depend on how many hours the employee works, how much work the employee accomplishes, or the quality of the work. As long as employees do some work during the week, they are entitled to their full weekly pay. Employers may also not discipline their employees by docking their pay or putting them on unpaid suspension for violating workplace rules.

Executive Employees

In a recent case, a Staples, Inc. assistant sales manager lodged a collective action suit against the office supply chain, claiming it violated the Act by misclassifying its assistant sales managers as executive employees, and failing to pay them overtime wages. According to the complaint, the work performed by sales managers “required little skill and no capital investment. [The managers'] duties did not include managerial responsibilities or the exercise of independent judgment. Rather, it involved many insignificant duties and duties identical to most sales assistants and stock clerks.” The suit alleged that the company's retail model and policies coerced the assistant managers to work overtime hours because they could not allow nonexempt workers to work overtime. One lesson to be learned from this case is that an employee is not exempt from the payment of overtime simply because he or she has a specific job title. To be considered an exempt employee, an employee's specific job duties and salary must meet all the requirements of the federal regulations.

Outside Sales Exemption

A number of lawsuits have been brought by salespersons who have been improperly classified as exempt under the outside sales representative exemption. For example, pharmaceutical sales representatives have brought a number of lawsuits against the largest drug companies, arguing that while described as “sales representatives,” the employees are actually engaged in pharmaceutical product promotion. Because the employees are not actually selling any products, they argue that the outside sales employees exemption is inapplicable.

The outside salesperson exemption is very limited. All of the following requirements must be met to be considered exempt. First, the employee's primary duty must be making sales or contracts for services or further use of facilities for which consideration will be paid by the client or customer. Second, the employee must customarily and regularly spend time in such work away from the employer's place or places of business. Soliciting sales over the telephone or computer from the employer's office, as is often the case today, does not qualify for this exemption.

Travel Time

Employers must also take care in compensating hourly employees for travel time. While commuting to and from work is generally not compensable, other travel time may be. Here are some basic rules for employers to remember when determining whether travel time is compensable:

• Travel time to the worksite may be compensable hours if the employee actually begins working at home (or at some other location prior to reaching the worksite). Lawsuits have been filed in recent years by employees claiming that they should be paid for their commute time because they were required to perform work, such as checking their e-mail or voicemail, before leaving for the workplace each day. Commuting time may also be compensable if the employee is required to perform some work while traveling between home and work. For example, the employee must transport other employees to/from work, or the employee must pick up supplies prior to his/her shift per the employer's request.
• If an employee's primary job activities require the employee to travel to different locations, the travel time must be counted as hours worked.
• Commuting in an employer's vehicle is generally compensable hours worked.
• Emergency situations occur when an employee has gone home after completing his or her day's work and is subsequently called to travel to perform an emergency job. All time spent on such emergency travel is hours worked.
• Time spent traveling to and returning from a one-day assignment away from the employee's home city is work time, except that the employer need not count the time the employee would normally spend commuting to and from the regular worksite. Travel that keeps an employee away from home overnight is work time when it cuts across the employee's regular workday or corresponding hours on nonworking days. Travel away from home that occurs outside the regular working hours, may or may not be hours worked depending on the circumstances.

Breaks and Meal Periods

Under the FLSA, employers are not required to provide meal periods or rest breaks for their employees. However, many states do mandate them, and, even under the FLSA, an employer that provides breaks must determine whether the time is compensable. Generally, breaks less than 20 minutes must be counted as hours worked.

Common violations occur when the employee works through his/her lunch break. Issues also arise if an employer require an employee to “clock out,” yet the employee continues to work. For example, a receptionist is permitted to eat lunch at his desk because he must still answer incoming calls. Whether the receptionist actually receives any calls is irrelevant and the lunch time is compensable. The receptionist is still required to be available for work. Employers must ensure that meal periods and breaks are free from any work if the employers want to categorize that time as unpaid.

'Donning' and 'Doffing'

In 1947, the FLSA was amended to specify that employers need not pay employees for activities that are “preliminary or postliminary” to “principal activity or activities,” including travel to and from the actual place of performance. However, hours within a “workday” still include activities near the commencement or completion of the principal activity or activities and that are “closely related activities which are indispensable to [job] performance.” These “donning and doffing” rules apply to various industries where employees need to get ready to work, including in high-tech clean rooms, chemical plants, chicken farms and perhaps even as to workers who are required to boot-up their computers prior to the start of the work day.

In 2005, the Supreme Court determined that employees who work in meat and poultry processing plants must be paid for the time they spend walking between the place where they put on and take off protective equipment and the place where they process the meat or poultry. The Court held that donning and doffing gear is a “principal activity,” and thus compensable time. The Court also found that any walking and waiting time that occurs after the employee engages in his first principal activity and before he finishes his last principal activity, is part of a “continuous workday.” The Department of Labor further clarified that donning and doffing of required gear is within the continuous workday only when the employer or the nature of the job mandates that it take place on the employer's premises. If an employer allows its employees to change into their “work gear” at home, the time to change into work gear is not compensable whether or not it actually takes place at home.

As a general rule of thumb, activities that occur either prior to or after the time that you end your “principal activities” would not be hours worked. For example, showering at the beginning or end of each workday, for your own benefit and convenience and not directly related to your principal activities, would not be hours worked. There are, of course, exceptions to this rule. When contract provisions, such as a collective bargaining agreement, or custom and practice delineate certain activities as hours worked, employers are required to pay their employees for those activities.

Employee Meetings

Employees are often required to go to lectures and seminars and to attend training programs or company meetings. As a general rule, if the employer requires employees to attend such a meeting at the worksite, the time is compensable. However, voluntary attendance at a training course, outside of the employee's working hours, would not be hours worked. The most common mistake occurs when employers require employees to come to work early for a “mandatory staff meeting,” but tell those in attendance to “not clock in.”

To determine whether a meeting or training session is compensable time, employers should look at four factors:

• Is attendance during the employee's regular working hours?
• Is the employee's attendance required?
• Is the meeting or training directly related to the employee's job? and
• Is the employee performing any productive work while at the meeting or training?

If the employer answers “yes” to any of these inquiries, the meeting or training may be compensable time.

What Employers Can Do to Protect Themselves

Employers can take a number of steps to ensure their compliance with the FLSA. First, employers need to familiarize themselves at least generally with both federal and state wage and hour laws ' and, to remember that state laws are often more rigorous. Second, employers should review their positions and job descriptions to make certain each employee is properly classified as exempt or non-exempt. This is the area where employers most often make mistakes, and can be the most costly if uncovered by a litigious employee or the DOL. Third, employers should complete a review of pay practices to ensure compliance with “salary basis” requirements and that salaried employees are not “subject to” impermissible deductions. Handbooks should include a safe harbor provision to avoid such liability as well. A “safe harbor” is a relatively brief period of time in which employers have the opportunity to correct any improper deductions it may have made from the salary of an exempt employee. This safe harbor is available to an employer only if it first: 1) has a clearly communicated policy prohibiting improper pay deductions; 2) reimbursed employees for any such deductions; and 3) made a good-faith commitment to future FLSA compliance.

Finally, it is a good idea for an employer to conduct an FLSA audit periodically, which is the best and most effective way to determine compliance with the various intricacies of wage payment laws. An FLSA audit may also provide a defense to liquidated damages for those employers who can prove that they had a good faith belief that their pay practices complied with FLSA requirements. To benefit from the defense, the employer must prove that: 1) it actually believed that its practices complied with the FLSA; and 2) its actual belief was reasonable when compared with the beliefs of other employers.

Conclusion

Employers must comply with the FLSA, and should not “go it alone.” The broad rules and regulations associated with employee compensation, as well as the particular state laws, make compliance very difficult. However, with proper legal assistance, employers can ensure compliance and avoid costly litigation.

Andrew M. Slobodien is a partner with Wildman, Harrold, Allen & Dixon LLP (Chicago) and can be reached at [email protected] or 312-201-2284. Stacey L. Smiricky is an associate with the firm.