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Employment Law Alert: Wage and Hour Suits on the Rise

Misclassification can have severe consequences for employers

Posted by Jared Jacobson on May 29th, 2013

It is no secret to employers, at least the ones with employment legal counsel or those who read the papers, that wage and hour violation lawsuits are on the rise. Although many employers believe they are insulated from a wage and hour case because they pay their employees a salary and categorize a few as “management”, “consultant” or “independent contractor” and therefore are not required to pay overtime or other employment-related taxes, this is not necessarily the case.

Although there are plenty of examples of lawsuits for failure to pay overtime, many others are for misclassification, i.e., the company classifies the individual as a consultant or independent contractor when in reality the individual is an employee under the employment laws.

Worker or Contractor?

There are several tests to determine whether a worker is in fact an employee or independent contractor which are applied differently depending on the jurisdiction. However, that topic deserves a full discussion of its own.

Employers sometimes misclassify employees to save money on employment taxes, unemployment, social security, overtime, and in other ways. Under federal and many state laws, employers must pay employees at least the minimum wage and must pay overtime that is at least 1.5 times the normal hourly wage. The misclassification can expose an employer to overtime violations, local, state, federal tax and other withholding liabilities.

Violations of the Fair Labor Standards Act are rising. Between April 1, 2012, and March 31, 2013, about 7,764 wage and hour claims were filed in U.S. district courts nationwide, according to the law firm Seyfarth Shaw. This means that the number of lawsuits has risen 518 percent since 1990.

Plaintiff Firms Fuel the Fire

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One possible reason for the uptick in cases is that employers of all sizes are often ignorant of their obligations regarding their workers. When combined with plaintiff employee rights attorneys who are actively looking for these cases, this creates a swell in filed cases.

Another possible reason for the increase in cases may be that in a down economy workers are more apt to consider all options besides foregoing the overtime and keeping their head down, which runs counter to the common belief that workers simply want to keep their jobs. Additionally, these wage and hour cases in particular can be very lucrative for the plaintiff firms, which no doubt fuels the fire.

It is not clear why employers violate the wage and hour laws and this author does not assume that it is always being done intentionally to increase a company’s bottom line. However, some business owners knowingly deny workers wages they are owed for the company’s financial benefit.

Misclassifying workers and failing to pay overtime not only hurts the workers, but hurts competition and society in general. If other companies continue to pay their workers legally, the payroll costs are significantly different, putting them at a major competitive disadvantage. Such a competitive disadvantage would likely lead to increased prices for consumers.

Jared Jacoboson
Jared Jacoboson

Attorney and founder of The Law Firm of Jacobson & Rooks, LLC

Jared Jacobson is one of the founding members of The Law Firm of Jacobson & Rooks, LLC. Jared Jacobson represents individual employees and executives as well as counsels employers in conducting workplace investigations to mitigate risks of employment and whistleblower litigation. Jared regularly performs human resource audits to ensure compliance with state (PA, NJ and NY) and federal discrimination, misclassification and wage and hour laws, as well as the risks associated with whistleblowers. Jared helps his clients understand the importance of investing in pre-emptive annual policy audits and work-place training as well as performing a proper investigation when a complaint is filed or threatened which can be invaluable when compared with the alternative.

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