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January 19, 2010

Wage and Hour Suits Continue to Rise

Federal lawsuits alleging violations under the Fair Labor Standards Act (“FLSA”), which once numbered fewer than 2,000 per year a decade ago, reached figures as high as 5,199 and 6,165 in 2008 and 2009, respectively. The increase in wage and hour lawsuits will likely persist in 2010.

The FLSA requires that all employers pay an overtime premium to employees who work more than forty hours in a week, unless they fall within one of the statute’s defined exemptions, such as employees who work in an executive, administrative or professional capacity.

Reasons for the Increase

With the high unemployment rate and current economic climate, employees who previously might not have pursued litigation are initiating actions for FLSA violations in hopes of recovering back wages and liquidated damages from employers. Concurrently, increasingly savvy plaintiffs’ attorneys, apparently attracted by the FLSA’s provision for attorneys’ fees, have started to amass class action suits, especially against large employers, for workplace policies regarding overtime and misclassification of employees as exempt. Moreover, heightened media attention surrounding large settlements in wage and hour lawsuits has fueled the increase in such claims.

Failure to strictly comply with the rigorous requirements of the somewhat antiquated FLSA also contributes to the uptick in wage and hour suits. In particular, jobs that have been traditionally viewed by many employers as exempt from the FLSA overtime requirements – particularly in the financial, mortgage and other service industries – have recently been held by several courts to require the payment of overtime. When retroactive overtime is tallied for a large number of employees, the overtime payments may be significant. Recent settlements and awards include a $37 million settlement by Merrill Lynch in an overtime suit by brokers, a $65 million settlement by IBM in an overtime suit by technical service professionals and information technology specialists, and a $38 million settlement by Washington Mutual Bank in an overtime suit by loan consultants. (See our client alert dated December 18, 2009).

Steps for Compliance

Employers should prepare to face litigation and take steps to mitigate liability for potential wage and hour actions, including a comprehensive review of their wage and hour practices and records. A comprehensive review would include ensuring that all exempt and non-exempt employees are properly classified and paid; that appropriate policies are in place for compensation due to variations in the work period, including interruptions in meal periods or incidental time spent providing report at shift change; that managers are trained on FLSA-compliant practices; and that a robust complaint mechanism allows employees to report alleged violations of those policies without retaliation. We are available to assist you in these matters.

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If you should have any questions regarding the recent trend in wage and hour litigation, in conducting a wage and hour compliance review, or any other related issues, please contact us.