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Unpaid Overtime and Misclassified Employees – The Fair Labor Standards Act

November 16th, 2007 by John Campbell

The Fair Labor Standards Act (FLSA) touches on a number of different labor practices, but two issues have gotten the bulk of the attention in the last several years. (Click here to see the full act, provided by Cornell University Law School .)  Both involve an employer’s tendency to underpay its employees, and both are surprisingly common.  These are often called “Wage and Hour” violations. 

Underpayment can occur because a company fails to pay overtime to hourly works by having them work off the clock or because a company classifies workers as “exempt” from overtime pay, when in fact they are not.  In a series of posts that will be released over the next few weeks, I’ll comment on these problems as well as others that arise under the FLSA. In this first post, I share an example of how failing to pay overtime might occur and explain how even small failures to pay overtime can result in serious underpayment problems.

Example
Assume that a company has 2,000 phone operators, each earning $10 per hour.  The operators make outbound sales calls and also answer incoming calls from potential customers.  The company, in its employee manual, and in big pink signs all over the office, states that “No employee shall work more than 40 hours per week.”  The company, of course, is trying to save money.  The problem is that the company also pushes its operators to handle at least 300 calls a day and to manage all the paperwork that comes with the calls.  If the employees fail to meet expectations, the company has a history of letting them go quickly.  Operators know this, and they know the policy about overtime, but they’re between a rock and a hard place. They’re not supposed to work overtime, but they can’t always get the work done in 8 hours a day.

To make up for it, they log onto their phones and computers at 7:40am and log-out about 5:15pm.  To avoid getting in trouble for working overtime, they mark their cards as 8-5.  The employee is actually working 35 minutes extra each day to meet the employer’s demands, but they aren’t paid for it.  That is about 3 hours a week.  The employee feels forced to work extra, but what else can they do? And besides, is it really a big deal?

The FLSA, and common sense, say it is.  What if that operator is a mother? She is spending three less hours a week with her kids, but she isn’t bringing home any additional income.  She is working for free and giving up part of her personal life.  The impact is real in dollars, too.   Under the FLSA, the operator should have made $15 per hour (1.5 times her normal hourly rate) for those three hours of overtime.  That is $45 per week, or $2250 per year. (That is a vacation or payments on a credit card).  But even that isn’t the final amount the employee is owed.  The FLSA says that if the employer fails to pay overtime and a case is filed, the pay is doubled as a penalty.  So, the employee is entitled to $4500 for each year.
By now, you might see how this can add up for an employee, and for an employer.  What if all 2,000 operators are being forced to work a little extra?  The employer might have saved 6,000 hours per week (300,000 per year), or $4.5 million dollars in overtime in a single year.  Plus, if the employer gets caught, it owes $9 million under the FLSA because the overtime is doubled. (If this number is surprisingly high to you, check out this site that details Wal-Mart’s troubles with these types of cases.  Wal-Mart was ordered to pay $172 million in California alone.)

In my next post, I’ll discuss misclassification of employees.  In the meanwhile, if you are working off the clock because you feel you have to get your job done, but your employer has ordered you not to work any overtime, please feel free to contact me by clicking here or calling 314-241-2929.  Whether you work in a grocery store, stock shelves at a retail giant, telemarket products, or do office work, you have the right to be paid for the hours you work.  

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