2 Overtime Settlements In A Week Highlight Rising Wage & Hour Risks of U.S. Employers

Updated: January 25, 2011

CALNET FLSA Backpay Settlement

On January 19, 2011, the DOL announced that prime contractor CALNET Inc. of Reston, Virginia., and subcontractors Acclaim Technical Services Inc. of Huntington Beach, California., and McNeil Technologies of Springfield, Virginia., violated the FLSA by not properly compensating workers for all on-call time, resulting in overtime violations. DOL also says the employers also were found to be in violation of FLSA recordkeeping requirements for failing to maintain proper records of the number of hours worked by employees and the compensation they were paid. To settle these charges, the three companies have paid their employees a total of $1,060,554 in back wages owed for the period between October 2008 and October 2010. CALNET paid $676,698 to 597 employees. Acclaim Technical Services paid $234,311 to 177 employees. McNeil Technologies paid $149,545 to 91 employees.

King Buffet FLSA Backpay Settlement

According to the DOL's January 24, 2011 announcement of the King Buffet restaurants settlement, DOL sued the restaurants after Wage and Hour Division investigators found that King Buffet violated the FLSA by paying some waitstaff only $10 per day, resulting in hourly pay below the federal minimum wage. In addition, King Buffet restaurants paid the kitchen staff a straight monthly salary with no overtime pay, even when these workers worked more than 40 hours in a week. The DOL also claimed investigators also found many workers at the restaurants were paid in cash, and that time and pay records were nonexistent, inaccurate, incomplete or falsified.

To settle the lawsuit, King Buffet has agreed to pay $420,000 in back wages and liquidated damages to 83 employees. As part of the consent judgment, King Buffet also agrees not to violate the FLSA in the future and to pay $5,000 in civil money penalties to the government.

Overtime & Other Wage & Hour Enforcement Risks Rising

The CALNET and King Buffet settlements are the latest in a wave of DOL wage and hour enforcement settlements and prosecutions. Government contractors and other employers increasingly risk triggering significant liability by failing to properly characterize, track and pay for on-call and other compensable time in violation of the FSLA or other laws.

The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates of pay, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. For those employees who customarily and regularly receive more than $30 a month in tips, employers may pay a base rate of $2.13 an hour in direct wages if the tips cover the difference. Employees must also maintain accurate time and payroll records. Improper classification of on-call or other hours that the FLSA requires an employer to treat as compensable exposes the employer to potential minimum wage, overtime and recordkeeping violations.

Under the FLSA, on-call time becomes compensable when the on-call conditions are so restrictive or the calls to duty so frequent that the employee cannot effectively use on-call time for personal purposes under the facts and circumstances.

Unfortunately, many employers often are overly optimistic or otherwise fail to properly understand and apply FLSA rules for characterizing on-call or other time, classifying workers as exempt versus non-exempt or making other key determinations.

Employers wearing rose tinted glasses when making wage and hour worker classification or compensable time determinations tend to overlook the significance of the burden of proof they can expect to bear should their classification be challenged. Under the FSLA and applicable state wage and hour laws, employers generally bear the burden of proving that they have properly paid their employees in accordance with the FLSA. Additionally, the FLSA and most applicable state wage and hour laws typically mandate that employers maintain records of the hours worked by employees by non-exempt employees, documentation of the employer's proper payment of its non-exempt employees in accordance with the minimum wage and overtime mandates of the FLSA, and certain other records. Since the burden of proof of compliance generally rests upon the employer, employers should take steps to ensure their ability to demonstrate that they have properly paid non-exempt employees in accordance with applicable FLSA and state wage and hour mandates and that employees not paid in accordance with these mandates qualify as exempt from coverage under the FLSA.

These mistakes can be very costly. Employers that fail to properly pay employees under Federal and state wage and hour regulations face substantial risk. In addition to liability for back pay awards, violation of wage and hour mandates carries substantial civil - and in the case of willful violations, even criminal- liability exposure. Civil awards commonly include back pay, punitive damages and attorneys' fees.

The potential that noncompliant employers will incur these liabilities has risen significantly in recent years. Under the Obama Administration, Labor Department officials have made it a priority to enforce overtime, recordkeeping, worker classification and other wage and hour law requirements. While all employers face heightened prosecution risks, federal officials specifically are targeting government contractors, health care, technology and certain other industry employers for special scrutiny. Meanwhile, private enforcement of these requirements by also has soared following the highly-publicized implementation of updated FLSA regulations regarding the classification of workers during the last Bush Administration. See Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes; Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny; 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For Employers; Quest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay.

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