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Why Wage and Hour Lawsuits Are On the Rise, What To Do About It

Payroll
Article
12/20/2016

Employers are increasingly being sued for failing to comply with applicable wage and hour laws, according to recent federal court data.

The federal caseload involving wage and hour lawsuits was up 7.6 percent to an all-time high of 8,781 cases by the end of the 2015 federal fiscal year—up from a record 8,160 during the previous year, as observed by Chicago-based Seyfarth Shaw LLP, citing federal judiciary data. This is more than five times as many filings as there were in 2000

Here's a look at what are considered the primary reasons cited for the increase in wage and hour lawsuits:

1. Heightened Scrutiny and Anticipated Rule Changes

The U.S. Department of Labor recently published a Final Rule, which has now been blocked by a Federal court, to increase the salary threshold for certain exemptions which permit workers to be classified as exempt from receiving overtime pay under federal law. The mid-2015 proposed rule led to more workers filing suits against their employers based on increased attention to wage and hour issues, according to Seyfarth Shaw.

Federal regulators have also increased scrutiny of how employers classify their workers—particularly when they classify them as independent contractors. Lawsuits involving misclassification of employees have drawn penalties in the hundreds of thousands of dollars in some cases. Employers are also facing greater scrutiny around joint employer relationships, which can occur in certain situations where a temporary staffing firm is utilized.

Lawsuits involving misclassification of employees have drawn penalties in the hundreds of thousands of dollars in some cases.

2. Greater National Focus on Wages

Minimum wage laws have become a major political issue in the United States. The federal minimum wage has stayed at $7.25 per hour since 2009, and only about half of the states have set their minimum wage rate higher. The presidential candidates have also spoken at length about wages, and their positions continue to be refined.

Seyfarth Shaw noted that all of the talk about the minimum wage is making wage and hour issues more prevalent for employers.

3. Confusion Over Laws

The Fair Labor Standards Act (the federal wage and hour law) has some terminology dating back to the 1930s, when blue-collar factory jobs were much more common. The outdated terminology has caused some confusion over the law by some employers, opening the door to more lawsuits.

4. Increase in Individual Claims

Difficulty satisfying the requirements for obtaining class and collective action certification in federal courts has caused an increase in individual wage and hour claims against employers, according to Seyfarth Shaw.

5. Decline of Labor Unions

The decades-long decline of labor unions could also be playing a role in the uptick of wage and hour lawsuits, labor law expert Samuel Estreicher told The Washington Post. Lawyers who once handled cases involving contract disputes under the National Labor Relations Act have turned to filing FLSA cases. Employer-employee disputes that were once solved in collective bargaining are now being sorted out in court.

"When I started out in practice, nobody really heard of the [FLSA]," Estreicher, director of the Center for Labor and Employment Law and New York University Law School, told the Post. "Then in the '80s, and during the Clinton years, some lawsuits were brought with respect to some fairly high-earning employees. So I think this is the growth area for plaintiffs-side attorneys."

The most important thing is to follow the rules carefully and seek guidance whenever a new law or agency guidance is introduced.

Whatever the reason for more wage and hour lawsuits, the trend is likely to continue at least in the short term. What can employers do to reduce the odds of such a lawsuit? The most important thing is to follow the rules carefully and seek guidance whenever a new law or agency guidance is introduced. Moreover, employers should aim to fully understand the laws as confusion over the rules can be one of the top reasons for failing to comply, resulting in such lawsuits.

 

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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