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Claim Your Free Copy of Top 100 FLSA Overtime Q&As

We’ve compiled a list of the 100 most commonly asked questions we have received on the federal Fair Labor Standards Act (FLSA) overtime regulations.
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This report, "Top 100 FLSA Q&As", is designed to provide you with an examination of the federal FLSA overtime regulations in Q&A format, including valuable tips for bringing your workplace into compliance in an affordable manner.

At the end of the report, you will find a list of state resources on wage and hour issues. This report includes practical advice on topics such as:
  • FLSA Coverage: How FLSA regulations apply to all employers and any specific exemptions from the overtime requirements
  • Salary Level: Qualifying for exemptions and nonexempt employees
  • Deductions from Pay: Deducting for violations, disciplinary reasons, sick leave, or personal leave

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March 04, 2004
Avoiding Multi-Million-Dollar Lawsuits Under the FLSA
Legal Editor, Business & Legal Reports

For a Limited Time receive a FREE Compensation Special Report on the "Top 100 FLSA Q&As," designed to provide you with an examination of the federal FLSA Overtime Regulations in Q&A format, including valuable tips for FLSA Coverage, Salary Level, and Deductions from Pay. Download Now

Radio Shack, Farmer's Insurance, Taco Bell, and the United Parcel Service. What do all of these companies have in common? Unfortunately, they have all recently been forced to pay legal settlements ranging from $9 million to $90 million for violations of the Fair Labor Standards Act (FLSA).

This alarming wave of FLSA enforcement activity shows a distinct trend and emphasis on FLSA and compensation-related lawsuits brought by the U.S. Department of Labor. What does this trend mean for employers? Why the sudden increase in FLSA lawsuits? How can employers avoid FLSA risks? Read on.

Lawsuits costing employers millions

The FLSA requires that employees working in excess of 40 hours per week be paid overtime at a rate of one-and-a-half times their regular hourly rate for those additional hours. There are certain employees that are exempt from this rule. In order to be exempt, employees must be paid on a salary basis, earn more than a certain dollar amount, and be classified as executive, administrative, professional, outside sales, or computer employees.

Sounds simple, right? Hardly. In fact, misclassifying an employee as exempt or non-exempt is one of the most common errors committed by employers. These simple errors result in lost overtime for employees who are entitled to overtime pay under the law and million of dollars in damages for employers. Where do employers go wrong? The following are some examples of seemingly small errors in employee classification that resulted in big losses for employers:

  • Radio Shack settled FLSA claims brought by1,300 store managers claiming that, although their job titles included the word "managers," their duties did not fall within the exemptions defined by the FLSA. Radio Shack settled for $29.9 million.

  • Farmer's Insurance settled with 2,400 claim adjusters who argued that their job function was merely to adjust claims and, therefore, they should be categorized as non-exempt. They were not involved with the selling of insurance, which would more appropriately have qualified them for an exempt status under the FLSA. They settled for $90 million.

  • Taco Bell settled with 3,000 managers and assistant managers of its restaurants claiming that they spent the majority of their work hours performing the same job functions as regular crew employees who received overtime pay for the hours they worked in excess of 40. Taco Bell settled for $9 million.

  • The United Parcel Service settled a California state FLS case with a group of part-time supervisors for approximately $18 million. California state law, which requires overtime to be paid to employees who work more than eight hours in one day, differs from the federal law, which only requires employers to pay overtime when employees work in excess of 40 hours per week. UPS did not properly follow the state law.

Why are so many FLSA cases brought against employers?

There are a variety of reasons that we are witnessing an increase in cases under the FLSA.

First, the Department of Labor has estimated that more than one-half of employers have incorrectly classified employees under the FLSA. In each of these cases, only one employee complaint to the Department of Labor concerning overtime is required to open an investigation of the entire company's classification methods. In other words, if one disgruntled employee complains to the DOL, all of the employer's pay practices come under scrutiny.

Second, the strong drive to decrease employer costs and increase productivity has made exempt employees (who can work unlimited hours without overtime) more attractive. As a result, there is a temptation for employers to classify workers as exempt, when by law they should be classified as non-exempt. In these cases, the employee's rate of pay and central job functions should be carefully examined in order to determine FLSA status - not just the job title.

Third, understanding the FLSA is not easy. The law presents a maze of rules, job categories and qualifications that are vague and highly difficult to understand. Beyond merely understanding the regulations is the practicality and cost of applying them to a group of employees. For this reason, many employers fail to correctly apply FLSA overtime regulations, nor do they utilize the right resources, legal or otherwise, to ensure that they have properly classified their employees.

Last and certainly not least, the FLSA provides significant financial incentives to employee-plaintiffs and their attorneys. In many cases, the FLSA allows for double damages and attorneys' fees. Considering the potential for sizable settlement and judgment amounts, it is entirely likely that the number of FLSA lawsuits brought against employers will only increase in coming years.

How to avoid an FLSA lawsuit against your company

There are several steps an employer or human resources professional can take to help insure that its company will not be subject to a multi-million dollar FLSA claim.

  • Make a concerted effort to understand and familiarize yourself with the FLSA. Understanding the FLSA's legal standards for exempt and non-exempt classification is key to correctly applying the law.

  • Determine whether the state wage and hour law conflicts with federal law. If there is a conflict, follow the law that is most beneficial to the employee.

  • Periodically review employees' actual job duties to ensure that they still fall within the administrative, executive, professional, computer, or outside sales exemptions.

  • Review job descriptions to determine whether they are still accurate, reflect the jobs being performed, and reflect the skills necessary to perform the job.

  • Utilize resources such as legal counsel or the Department of Labor's Wage and Hour Division for advice in those cases where it is not clear whether a particular employee or job should be exempt or non-exempt.

If you discover that an employee is wrongly classified as exempt, the employer should calculate how many overtime hours the employee has worked in the past two years (the federal statute of limitations for such claims), then pay the employee the overtime due. The employer should also have the employee sign a well-drafted waiver and release to free the employer from further liability.

Following these tips will assist employers in avoiding a vastly expensive lawsuit, simultaneously helping to create a group of satisfied employees who feel appreciated for their extra hours worked.

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