Pain-and-a-Half

What's behind the startling rise in overtime lawsuits? Confusion, collusion, and a dash of retribution.

File it under “No good deed goes unpunished.” Two years ago, when the Department of Labor revised the Fair Labor Standards Act (FLSA), the intent was to clear up confusion regarding overtime pay. Instead, the always-thorny matter of who qualifies for overtime pay was made worse, not better, and a slew of lawsuits have resulted. In some cases it appears that companies knowingly violated the rules in an effort to aggressively reduce labor costs, but others may find themselves on the wrong side of the law despite their best efforts to obey it.

A pending class-action case against Lowe’s, in which employees allege that they were not properly compensated for working additional hours, is widely seen as a sign of things to come. Disputes about who is owed overtime pay — and how much — have created a booming market in employment litigation. Sam Smith, a managing partner at Tampa-based Burr & Smith, says his firm sees overtime suits outnumbering discrimination suits by nine-to-one.

While some high-profile cases, such as a 2002 verdict in favor of Wal-Mart employees, have hinged on managerial misconduct, the complexity of the FLSA and a welter of state laws often result in honest mistakes. Last year, for example, Farmers Insurance Exchange ended up paying around $52 million in back pay after a judge found that the company had incorrectly assessed the overtime status of claims adjusters. Marquee corporations including IBM and JP Morgan face wage-and-hour lawsuits that, while varying in their particulars, share one common theme: employees claim they were incorrectly branded as being ineligible for overtime pay. “The federal overtime law is confusing for many employers,” says Penny Morey, managing director at CBIZ Human Capital Services. “Even HR professionals don’t always understand it, so line managers are even less likely to follow it correctly.”

Straw Bosses and Legmen

There’s little doubt the FLSA was due for an update. Enacted during FDR’s Administration, the act still included references to job titles like keypunch operator, legman, and straw boss. “There was a sense that the FLSA was a New Deal relic with no relevance,” says Joseph Baumgarten, a partner at Proskauer Rose. “It did not address a modern service economy.”

The DoL’s revisions included changes to the job-duties tests — the first substantial overhaul of the guidelines in 55 years — that attempt to clarify which workers are exempt (that is, not eligible for overtime) and nonexempt (overtime-eligible). Generally speaking, salaried workers who are professionals, highly educated, or who perform true managerial functions are not entitled to overtime. The mere fact that an employee is “salaried,” however, does not necessarily make the worker exempt, hence the need for a series of tests (essentially an analysis of the skills and duties of a given position) to see which employees fall into which classification.

In updating the FLSA, officials at the DoL conceded that their own investigators found it difficult to decipher the law. The agency also acknowledged that confusing and antiquated regulations had allowed “unscrupulous employers to avoid their overtime obligations.” But rather than reduce complaints, the revisions increased employee awareness about the rights of salaried workers. “When the DoL revised the wage-and-hour regulations, it galvanized people’s sensitivity to them,” explains Baumgarten. “Employees started asking themselves, ‘Why haven’t I been paid overtime?’”

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