Firm News

Risk Management Strategies For Wage And Hour Class Action Lawsuits

Starting a business can be exciting, as is hiring that first employee. As your business grows, and you go from one employee to 20, 50, or eventually hundreds or even thousands of employees, the excitement can settle into complacency. Worse, if you do not have an effective system in place, keeping track of everyone’s wages, benefits, hours worked, and when they have been paid can become an unwieldy mess that puts your thriving business at significant risk. Without the appropriate risk management strategies in place, your business can be at risk of class action lawsuits for wage and hour violations as your employee list grows. Whether you are seeking more information on avoiding wage and hour violations, or are facing a potential lawsuit, an experienced New York employer defense attorney with Schwab & Gasparini may be able to assist you. Schedule a consultation in one of our four offices by calling our Syracuse office at (315) 422-1333, our Albany office at (518) 591-4664, or our White Plains and Hudson Valley offices at (914) 304-4353.

What Are Wage and Hour Class Action Lawsuits?

Class action lawsuits are lawsuits that are collectively brought against someone by a group of people with similar grievances. In the case of wage and hour claims, these lawsuits are brought by a group of employees who feel they are getting unjust or substandard treatment in their workplace by their employer, specifically regarding wages or overtime pay. 

In wage and hour class action lawsuits, race, age, or immigration status are irrelevant. All employees are considered persons for these lawsuits. While there is no specific number that defines a class action lawsuit, it is generally easier to get a judge to certify the class action if there are a few dozen people, or at least 40 individuals. The purpose is to show that there is a large enough group of people with the same or similar complaint that it would be impractical for the court to require each individual to file their own lawsuit. If a business is facing a class action lawsuit for wage and hour violations, this can make what may otherwise have been a minor lawsuit worth only a few hundred or thousand dollars into a much more significant claim that could cost them hundreds of thousands. 

Commonly Made Wage and Hour Claims

There are many wage and hour claims that can be made, but some are much more common than others. The four that occur most often are failure to pay employees for overtime they have worked, failure to give employees adequate breaks, failure to pay for work that is done off the clock, and failure to pay at least minimum wage on either a state or federal level. 

Additionally, if employees band together for a class action lawsuit, they may have more than one claim. For example, they may claim they are not paid for work done off the clock and not paid for overtime as well. This is why it is crucial that employers have risk management strategies in place to avoid making these mistakes in the first place. 

Damages for Class Action Lawsuits for Wage and Hour Claims

There are two ways employees can file wage and hour claims: through the federal Fair Labor Standards Act (FLSA) and through New York’s state Department of Labor. Which option the employees use depends on the type of violation they are alleging. The option they choose determines what kind of damages the employer may be responsible for, if the lawsuit is successful for the employees. If enough employees have the same or similar complaints, they may opt to bypass filing a claim this way and instead, file a class action lawsuit instead. 

FLSA vs. State Department of Labor

FLSA sets wage and hour regulations on a federal level. This means that regulations set by FLSA are the minimum standards that must be met in all 50 states. Each state is then able to create their own laws and regulations that exceed federal regulations. If the wage and hour violation actually does violate FLSA, then the employee would file the claim through FLSA. If the wage and hour violation violates a state law but exceeds FLSA regulations, the employee would file their claim with the state’s Department of Labor. 

For example, federal minimum wage is $7.25 per hour. New York state’s minimum wage exceeds that, averaging $15 to $16, depending on the exact location in the state. If an employer is accused of paying less than the federal minimum wage, the employee would file the claim with FLSA. If the employer is accused of paying more than federal minimum wage but less than New York state’s minimum wage, the employee would file with the New York Department of Labor. 

Claim Based on FLSA

If the employee files their claim based on FLSA, they will file with the United States Department of Labor, who will then investigate the employer and determine if the claim is valid. Under FLSA, the Department of Labor limits the employee’s potential recovery with a liquidated damages provision. This provision allows the employee to receive double the wages owed for the two years previous to filing their claim as well as during any continuing violation period. If the employer’s violation is deemed “willful,” the employee can recover up to three years of damages. Employees can also receive attorney’s fees and interest on their claims. 

Claim Based on New York State Law

If the employee files their claim based on New York state law, they will file with the New York State Department of Labor (NYDOL). NYDOL will not accept the claim if it is for work outside of the state of New York, if the employee has already filed a lawsuit, and several other instances. New York’s statute of limitations is found at N.Y. Labor §198 and provides employees six years to file their claim. If their claim is successful, they can recover full wages, wage supplements, benefits, and liquidated damages for the entire six years. They may also receive attorney’s fees and costs incurred to enforce any court judgments. Additionally, any amount not paid 90 days after the judgment is granted or 90 days after the expiration of any appeal period with no appeal pending, the judgment automatically increases by 15%. 

N.Y. Penal §155.05 began classifying wage theft as a felony in September 2023, which means that now employers not only face class action lawsuits but also possible criminal penalties as well for wage and hour violations. This makes it even more essential that employers protect themselves against these violations with effective risk management strategies.

Risk Management Strategies to Avoid Class Action Lawsuits

While there may be employers who deliberately attempt to underpay their employees, most wage and hour violations are unintentional mistakes because the employer did not have a clear written plan, properly trained human resources staff, or other organizational issues. 

Fortunately, with a few simple risk management strategies, employers can ensure their employees are properly paid and that they do not unintentionally violate wage and hour regulations on a federal or state level. Employers may want to consider some or all of the following strategies based on the number of employees they have and the company’s needs. 

Keep Detailed Employee Records

Some employees will take their paycheck at face value, assuming that the hours worked, hourly pay or salary, and taxes and other deductions are accurate. Other employees keep their own detailed records and will carefully compare their paycheck to their own records to confirm everything is accurate. If an hour and wage claim or class action lawsuit arises, the employee’s own records will serve as powerful evidence, particularly if the employer does not have their own records to show how they arrived at the figures on the employee’s paychecks. 

However, employers should take extra steps to ensure that they have detailed records. The employer should keep the employee’s personal information, such as their name, address, telephone number, date of birth, and Social Security number. They should also keep records of the employee’s pay rate, wage supplements, benefits, hours worked, earnings, and all additions to and deductions from their paychecks, such as bonuses, reimbursements, taxes, and health insurance premiums. 

Pay Employees on Time and in Full

There are times when small businesses may struggle financially, such as when their own customers do not pay or during pandemics or natural disasters. While there may be occasional instances where an employer can prove a legitimate reason for not paying their employees, it is important that this is a rare occurrence. Additionally, if a mistake is brought to the employer’s attention, they should take steps to rectify the mistake as quickly as possible. 

Whether employees are paid weekly, biweekly, or monthly, ensuring that the pay schedule is clear, including which day of the week or month employees can expect to receive their paycheck is important. Ensuring that paychecks are issued and available on the promised date is also important, as is ensuring that each paycheck is for payment in full of the most recent time period. However, employers should also ensure their policies include detailed information regarding what happens if an employee fails to submit the required information in time. For example, the company policy may state that if the employee fails to submit their time card by midnight each Friday, time cards submitted after that time will be paid with the following pay period’s check. This may be particularly important if payroll is outsourced. 

Audit Policies and Procedures Frequently

Job descriptions, employee handbooks, and business policies are often written and then forgotten about except when handed out to new employees at orientation or when an employee files a complaint. Employers should take time to review these documents frequently to ensure that all the information contained in them is accurate and up-to-date. If there is outdated or inaccurate information, the document should be updated (including the date it was updated) and new copies issued to all existing employees to ensure everyone has the same accurate or updated information. 

Additionally, when reviewing these documents for accuracy, employers should conduct audits to ensure that employees are following any policies, procedures, and processes included. If they discover employees are not following policies, procedures, or processes, the employer should take steps to ensure the employees begin following them to ensure compliance. 

Hire Appropriate Human Resources Professionals

Hiring well-qualified and trained human resources professionals may be one of the most valuable risk management strategies to avoid hour and wage claims and lawsuits. When the professionals handling payrolls and other human resources details are familiar with all elements of FLSA and New York state law regarding wages and hours worked, the employer’s risk is significantly reduced. 

Conduct Regular Payroll Practices and Employee Classification Audits 

Misclassifying employees is another way that employers can run afoul of FLSA or state law and find themselves defending against class action lawsuits. Inconsistent or confusing payroll practices can also lead to legal trouble. Conducting regular audits of both payroll practices and employee classifications to ensure compliance with the laws can reduce the risk of claims. Incorporating this strategy with multiple other risk management strategies can strengthen the employer’s position and help them avoid having claims or lawsuits filed against them. 

Consult with Outside Legal Counsel

Employers are expected to be familiar with many of the laws and regulations that apply to their business. However, unless the employer is a law firm, it is unlikely that they can familiarize themselves with every detail of these laws and regulations. As laws and regulations also change regularly, even if an employer is familiar with them, they may change without the employer realizing it. 

Consulting with outside legal counsel, such as a labor and employment law attorney with Schwab & Gasparini, may allow an employer to learn about new or changing laws and regulations that apply to their business and how they can protect themselves against claims. Among risk management strategies, consulting with legal counsel may be one of the easiest and most effective ways of ensuring compliance with federal and state laws and regulations. 

Train Front Line Supervisors on Wage and Hour Laws and Requirements

While it may seem as though the only people who need to understand wage and hour laws and requirements are those specifically involved with payroll, front line supervisors may play a bigger role in violations of wage and hour laws and requirements than employers realize. Front line supervisors may mistakenly tell employees to do things that violate these laws and requirements, such as telling them to clock out for short breaks or do off the clock work without being paid. Pointing the finger at a supervisor will not absolve the employer of liability, as the supervisor represents the employer. 

Therefore, ensuring that front line supervisors are trained on these laws and requirements is an effective way of ensuring that compliance happens from the top down in a company. Offer frequent training to these supervisors, and ensure that there is thorough coverage of off the clock work, meal breaks, and rest periods for hourly employees. Offer front line supervisors a direct line to someone experienced and knowledgeable in human resources who can quickly answer questions if they arise during the workday. 

Read Your Employment Practices Liability Insurance Policy 

When it comes to risk management strategies, this strategy is less about prevention and more about being prepared in case the worst happens. Most employment practices liability insurance (EPLI) policies do not typically cover wage and hour claims or class action lawsuits related to them. However, employers may be able to challenge this if the lawsuit also includes an EPL allegation that is covered by the EPLI policy and the policy is a duty-to-defend policy. 

Sometimes, the policy may also have sublimated defense-costs-only coverage that the employer can use. In either case, in order to benefit from these potential options, the employer must be familiar with what their EPLI policy says. Taking the time now to become familiar with the policy, and ask questions of an attorney or the insurer may be of enormous benefit later. 

Can You Use Artificial Intelligence to Track Time Worked?

At this time, there are no federal or state laws regarding the use of artificial intelligence (AI) to track employee hours for payroll purposes. New York Bill S07623 is in the Senate Labor Committee and, if passed, would potentially allow employers to use AI for limited purposes, one of which is managing wages and benefits. While this does not specifically state that time tracking would be acceptable, it could fall under the umbrella of managing wages and benefits and therefore, potentially be allowed in New York state. However, the United States Department of Labor has expressed serious concerns regarding the use of AI to track employee hours.

Artificial Intelligence Concerns

Artificial intelligence is still new technology, which means there are still quirks to work out and things that are not known. This raises a number of concerns regarding the use of AI to keep track of employees’ working hours for payroll purposes. One concern is that AI may code shift breaks as noncompensable when they should be compensable. While meal breaks of 30 minutes or more are noncompensable, shorter breaks of 20 minutes or less are viewed as being for the employer’s benefit and thus, must be compensated. If AI incorrectly identifies these breaks as noncompensable, employees would have a claim. 

Another concern with using AI to track working hours is that the software may not accurately account for all the time worked, especially when the employee is doing offline tasks. AI software often tracks time worked based on website and application usage, keyboard and mouse activity, and even physical movement in front of the device. If the employee is reading and reviewing a paper document, attending an in-person meeting or a virtual meeting on their phone instead of their laptop, taking a work-related phone call away from their computer, or other tasks that do not directly involve the use of a device equipped with the AI software, the software may assume the employee is not working and not include the time in their hours worked. Even as little as 10 minutes per day spent on offline tasks that the AI determines is “idle” time or time not working can add up to nearly an hour each week that the employee is underpaid. Multiply that by several employees and this can quickly add up to wage and hour claims. 

Artificial Intelligence Best Practices

In this digital age of new technology and hybrid work, it can be very tempting to rely on AI to track an employee’s hours. The use of AI takes pressure off the employer to know when the employee is working at home. However, the potential downsides make it extremely risky. Instead of relying on AI to calculate an employee’s hours worked to determine their pay, employers may want to rely on AI for other purposes that are less problematic. 

Employers may find it useful to provide insight into employee work habits. For example, AI may help employers learn more about small changes employees make to processes and procedures that speed up a work task, additional steps or tasks that are not currently included in processes and procedures but should be, or other insights that allow the employer to create more efficient standard operating procedures. 

How an Employer Defense Attorney May Be Able to Assist Your Business

A minor wage and hour claim can quickly turn into something bigger. To avoid class action lawsuits, employers should engage in a variety of risk management strategies to prevent violations or correct them as soon as possible. An employer defense attorney at Schwab & Gasparini may be able to assist your business with finding and implementing appropriate strategies to reduce risk, as well as represent your business if a claim or lawsuit is filed. Our experienced attorneys can collect evidence, engage in negotiations, and defend your reputation. We stand ready to meet with you in any of our locations. Contact one of our four offices by calling our Syracuse office at (315) 422-1333, our Albany office at (518) 591-4664, or our White Plains and Hudson Valley offices at (914) 304-4353 and schedule a consultation.

Mon Dec 23 2024, 12:00am