Managing the Risk of Wage and Hour Litigation

Federal and state wage and hour class actions have increased dramatically over the past 10 years. In 2009, the top ten private wage and hour settlements under the FLSA totaled nearly $364 million, an increase of 44% from the previous year.

In their April 2010 Labor and Employment Law newsletter,Vedder Price notes that "[s]mart employers are not sitting idle. Rather, they are proactively auditing wage and hour practices and implementing policies and procedures to prepare for and prevent wage and hour claims (including class actions) before those claims are filed." Vedder Price recommends the following:

(1) Ensure compliance with state and federal law - employers should periodically examine their policies and practices, including but not limited to, appropriate exempt / nonexempt classification, payment of all compensable work time for nonexempt employees, correct overtime calculations,  compliance with meal and rest break requirements, and appropriate employee / independent contractor classification.

(2) audit and update record keeping practices - the successful defense of any class action wage and hour lawsuit is contingent on accurate and detailed record keeping. An audit of an employer's record keeping practices is necessary to ensure that records are being maintained correctly and for the appropriate period of time.

(3) Provide wage and hour training for human resources, supervisors, and employees - supervisors in particular should be trained regularly on employer wage and hour policies. Many wage and hour lawsuits arise after supervisors interpret and apply employer policies in an individualized and inconsistent manner.

(4) Implement an effective "open door" wage and hour complaint reporting system - frequently, the most cost-effective way to resolve wage and hour issues is to address the employee's concerns directly. Employers should consider implementing a complaint reporting system that invites discussion about these issues and provides for a timely and fair resolution of employee concerns.

While focusing on policies is certainly important, the real emphasis should be placed on practices. An employer's policies could be in compliance, but in practice those policies are not being followed. One useful tool in assessing how well your organization is implementing its wage and hour policies is an examination of the underlying data. For example, time sheet and clock in / clock out data can be studied to determine whether employees are receiving - and recording - meal breaks and rest breaks in accordance with policy. This data can also be evaluated to ensure that rates of pay are properly calculated. A statistical audit of clock in / clock out data and payroll data can assess whether employees are being paid correctly for overtime hours. Statistical analyses can help you determine whether your policies are in fact being followed in practice.