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Lessening Liability for Unpaid Overtime Pay Claims: The Best Defense is a Good Offense

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Lessening Liability for Unpaid Overtime Pay Claims: The Best Defense is a Good Offense

The Problem

The Biden DOL is primed to aggressively pursue errors made with respect to the payment of overtime compensation as required by the Fair Labor Standards Act (FLSA). While doing so, it’s also primed to assert claims for liquidated damages whenever it finds errors, even for errors that were inadvertent, and even for those that may seem nominal. These liquidated damages are equal to the amount of unpaid overtime its investigators deem due.

Liquidated damages are also generally due if an employer is found liable for unpaid overtime in any FLSA lawsuit filed by employees on either an individual or a collective class basis. When such lawsuits are brought, the employer may also be liable for the plaintiffs’ attorneys’ fees. These fees are often much greater than the claim for unpaid overtime and serve to overshadow the merits of the case and interfere with the ability to settle.

The Means to Address This Exposure

Prudent employers can take action to either eliminate or greatly reduce their exposure to unpaid overtime and liquidated damages claims. How? The answer is one word: “audit.”

A skillfully done audit can identify areas that typically trigger these inadvertent errors. The audit can identify and even correct concerns with respect to errors in:

  • identifying hours that are compensable under the Act (such as pre- and post-shift activities, rest and meal breaks, travel, and medical testing and treatment);
  • determining the correct regular rate of pay for calculating overtime pay (such as properly accounting for bonuses, commissions, longevity premiums, shift premiums, call-in pay, etc.); and
  • classifying employees as exempt from overtime or as independent contractors.

Importantly, a mere audit may not suffice. The audit must be done and documented in a way to establish that the employer took its obligations under the Act seriously, conformed to the findings of the audit, and did so in good faith. This is key because if such an audit is relied upon, but the DOL or a court concludes that a violation on the areas audited still exists, the employer may be able to assert a “good faith” defense and reduce or eliminate its exposure to liquidated damages, and even reduce a potential look-back period for liability for unpaid time from three to two years. Such a position can also greatly benefit employers as they try to settle FLSA claims, as a well-done audit can serve to greatly lower the potential value of the claim.

As stated above, the audit must be skillfully done; not all audits are created equal. Often, we recommend that the audit be overseen, if not done, by an attorney who is well-versed in the FLSA. The auditor can help assure that the audit serves to support the good faith defense, if needed, and a lot of that may depend on the auditor’s expertise and reputation. Further, the auditor can counsel as to suggested adjustments. Last, but not least, if the auditor is an attorney, or the audit is being conducted through counsel, attorneys can provide assistance in maintaining the confidentiality of the audit’s findings, if desired, or advising the company regarding the waiver of any attorney-client privilege, as may be feasible.

Next Steps

Undertaking the audit sooner versus later cannot be overemphasized. If the project is put off and a DOL audit or lawsuit is filed, the advantages discussed above will be lost. It will be too late, and, as a result, otherwise avoidable liability could be triggered, liquidated damages will likely be in the mix, and the cost of the other side’s attorneys will impair the ability to negotiate a reasonable resolution.

If you have any questions regarding these issues or want to discuss the possibility of conducting an audit, Dykema’s labor and employment law attorneys are available to discuss options for moving forward.