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5 Dumb Things Employers Think About Overtime

April 15, 2021 by in "Two Minute Takeaway"

Plaintiffs filed almost 7,000 cases under the Fair Labor Standards Act (“FLSA”) last year.  Claims typically cover many employees, so the actual number of plaintiffs is far greater than the number of cases filed.  With double damages and attorneys’ fees, the financial exposure to such claims quickly adds up.  The prevalence of claims is unfortunate because compliance with FLSA’s overtime provisions is relatively simple, requiring payment of time-and-a-half (150%) when employees work in excess of 40 hours per week.

Employers subscribe to five common misconceptions — the better word may be delusions — that often lead them to violate the FLSA’s overtime provisions.

1.  “Our employees are too senior for overtime”

Employers wrongly believe that overtime laws protect only menial or hourly workers.  The FLSA contributes to this misconception by exempting “administrative” employees from its coverage, suggesting that anybody at or above the secretary or “admin” level is not covered.  The administrative exemption, however, covers high-level workers, such as those setting policy and supervising others.  Many salaried, white-collar, workers who perform repetitive tasks are covered by the FLSA.  In this age of title inflation, many employees with impressive-sounding titles such as “Account Manager” or “Sales Executive”, are entitled to OT.

2.  “We have a policy against overtime”

Employers also believe that prohibiting overtime protects them from overtime liability.  Some employers adopt strict policies against overtime mistakenly believing such policies shield them from liability.  At other employers, limits on overtime gradually creep into the workplace, for example when cost conscious managers tell employees that OT work isn’t allowed on certain projects or for certain clients.  Employees, however, cannot “opt-out” of the FLSA and OT must be paid to employees working more than 40 hours, even when employers have warned employees not to work overtime.  As one court memorably stated, employers are responsible for paying overtime “even if they did not ask for the work, even if they did not want the work done, and even if they had a rule against doing the work.” 

3.  “We aren’t responsible for employees placed by a staffing agency”

Staffing arrangements also create numerous FLSA issues.  The staffing company and/or the client may believe they are not the “employer” responsible for tracking and paying OT to temporary placements.  Under the law, however, staffing firms and their clients are both fully liable for payment of overtime under the “joint employer” doctrine.  Staffing arrangements, therefore, expand rather than limit responsible parties and finger pointing is not a defense in these circumstances.

4.  “We gave an employee a raise in lieu of overtime”

Other employers seek to negotiate agreements with employees regarding OT compensation.  Recognizing that OT is due, an employer may seek to minimize its liability and paperwork by giving an employee a raise or lump sum payment in lieu of OT.  These arrangements often backfire on employers.  For example, an employer paying an employee $5,000 in “extra” salary to cover all OT, will only result in increasing the employee’s imputed hourly rate for the purpose of calculating time-and-one-half.  Courts do not enforce agreements whereby employees agree to accept lower payments, or payments calculated by a different formula, than required by the FLSA.

5.  “Our employees complained, and we settled their overtime claims out of court.”

Relatedly, courts will not enforce even a signed settlement concerning OT obligations unless the settlement was approved by a court.  This situation often arises when employees complain about not receiving OT and the employer agrees to make a payment to settle the potential OT claims out of court.  Courts, however, consider such settlements to be the product of unequal bargaining power, and will allow employees entering such settlements to later file suit regardless of the settlement and any release contained therein.  Highly unique in American law, negotiated FLSA settlements are unenforceable unless they have been approved by a Court. 

If any of these wives’ tales about overtime sound familiar, your company probably needs to review its overtime compliance.  Give me a ring, I’d love to help you out!