On August 5, 2014, The US Department of Labor (DOL) announced that LinkedIn has agreed to pay $6M ($3.3M in actual back wages, $2.5M in damages) following an investigation of unpaid overtime. However, the issue at hand was not the classic question of exempt versus non-exempt status, but one of recordkeeping.
In 2004, Electronic Arts was subject to a Class Action lawsuit for unpaid overtime and misclassification of programmers as exempt employees. EA ended up settling for $15.6M. Since then, Wage & Hour litigation has increased by 237% with the DOL announcing an initiative in 2010 to focus on recordkeeping.
Under the Fair Labor Standard Act (FLSA), records must be maintained for non-exempt employees detailing such items as hours worked, basis on which employee wages are paid, all additions and deductions, etc. A copy of the full requirements can be found here. The DOL and plaintiffs’ bar are also looking at specific trends such as:
- Automatic deductions for meal periods: Some companies automatically deduct time for meal breaks, even if an employee worked through all or part of a meal break.
- Rounding of hours: In many cases, time worked was rounded for accounting ease, despite the availability of precise time tracking.
- Remote work: Checking email at home before work, driving for work, checking company emails on a smartphone after hours or on the weekend, reviewing files and other work-related materials is not recorded as time worked.
- Off-the-clock work: Working before or after a shift and during meals breaks while on the premises is not always recorded.
- Regular rate issues: In most cases, overtime calculations- 50% premium rate from the regular rate of pay for hours worked over 40- must include not only regular hourly wages, but also include non-discretionary bonus and commissions.
Accurate recordkeeping, or the absence thereof, can result in significant settlements.
As insuring wages creates a moral hazard (a company could fail to pay overtime and instead transfer such costs to insurance), most Employment Practices Liability Insurance (EPLI) policies fully exclude this exposure. While in some cases a carrier might contribute a minimal amount (typically $100K to $250K, and typically for smaller employee counts) for defense costs, they do not contribute toward settlement or liquidated damages.
Without the safety net afforded by insurance, risk management and compliance become all the more important. A spokesperson for LinkedIn stated, “This was a function of not having the right tools in place for some employees and their managers to track hours properly.”
The DOL itself provides tools to help companies with compliance of the recordkeeping requirements, including posters, fact sheets, FAQs, and other assistance available here. And, yes, they even have a smartphone app!
Further, companies can adopt tighter workplace rules for non-exempt employees including:
- Consider eliminating automatic deductions for meal breaks and discourage employees from eating lunch at their desks
- Ensure employees are paid for every minute actually worked and consider implementing time tracking tools such as the DOL Timesheet smartphone app
- Require any time spent on work-related activities performed off-site (remotely) is tracked. Consideration can also be given to not allowing non-exempt employees to have company emails on their smartphone, and discouraging non-exempt employees from logging onto work computers during non-regular hours
- Require employees to accurately record all time worked and consider strictly prohibiting off-the-clock work, including arriving at their desks before their scheduled start time or staying at their desks after-hours
- Ensure accurate calculations of overtime pay, including bonuses and commissions.
Insurance can help cover many exposures, but knowing what insurance can’t cover is equally important.
We will continue to monitor FLSA trends and keep our clients and partners appraised.