Increase in Wage and Hour Lawsuits Likely to Continue

The Obama administration allotted $117 billion for the U.S. Department of Labor (DOL) in the proposed budget for the 2011 fiscal year, setting aside $25 million for the DOL to combat employee misclassification. In total, the DOL Wage and Hour Division expects to hire 90 new investigators to focus on employers who misclassify employees as independent contractors and deprive them of benefits such as overtime.

The result is that employers are likely to face more enforcement actions from the DOL related to wage and hour issues. This follows the current trend of increasing actions brought under the Fair Labor Standards Act (FLSA). Since 2004, there has been an 11% increase in wage and hour enforcement actions and a 77% rise in private lawsuits related to wage and hour disputes by the DOL.

An employer’s classification of an individual as an independent contractor bears no weight as the DOL and courts look to a number of factors to determine whether an individual is an independent contractor or employee. Such factors include:
  • an employer’s right to control the manner and means by which work is accomplished;
  • the skill required to perform specific job duties;
  • the duration of the relationship between the parties;
  • the employer’s discretion over when and how work is performed; and
  • the method of payment.
Unfortunately for employers, there is no bright line test to determine whether an individual is an employee or an independent contractor and the DOL and courts examine such relationships on a case-by-case basis.

Even more troubling for employers is the rise in private class-action lawsuits related to wage and hour issues. In 2009, Wal-Mart settled a FLSA suit for $11 million; Lowe’s paid $29 million; and Wachovia paid $39 million. These suits are often fact-intensive and employers stand little chance of succeeding on a motion to dismiss claims brought under the FLSA. Further, the FLSA’s attorney fee provision for prevailing plaintiffs results in increased monetary liability for employers. It is important to ensure that you are complying within FLSA regulations as to these issues.

Author: Jon Secrest

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