Misclassification of Employees: Pay Overtime Now, Or Pay the Lawyers Later

Even though the increase in the minimum salary threshold for the Fair Labor Standards Act's (FLSA) overtime exemption has not taken effect (and probably will not in the near future), employers need to be ensure that they are properly classifying employees as exempt or non-exempt, or suffer the consequences. Some recent settlements of lawsuits involving misclassification show how expensive misclassification of employees, and failing to pay overtime, can be:

• Noodles & Company will pay $3 million to settle the overtime pay claims of a nationwide class of assistant general managers who said they were wrongly classified as exempt employees under the Fair Labor Standards Act;
  
• Bob Evans Farms Inc.'s paid $16.5 million to settle its restaurant assistant managers' overtime pay claims;
  
• Panda Express Inc.'s paid $3 million to settle its store managers' claims.
  
• Kmart Corp. reached a $3.8 million settlement of assistant store managers' overtime pay claims;
  
• Dick's Sporting Goods Inc. settled for $10 million the overtime claims of its assistant store managers.
  

Moreover, the Labor Department in fiscal 2016 obtained approximately $39.8 million in monetary relief for 44,707 food service workers alleging unpaid overtime or other FLSA violations, according to department statistics.

Misclassification/failure to pay overtime lawsuits are attractive to plaintiff's attorneys because they often can be brought as collective actions (a type of class action for violations of the FLSA) when more than one employee in a class of jobs is misclassified. More plaintiffs potentially mean more money.

What are employers doing wrong? In many cases, employers give employees titles like "assistant manager," that sound like exempt jobs, but the actual duties of those employees do not meet the test for an exemption. For example, their job duties don't differ much from those of hourly workers and they exercise little or no managerial discretion. When these misclassified employees work more than 40 hours per week and are not paid overtime, the employer faces liability for violation of the FLSA.