Wage and Hour Myths: Illuminating the Truth Behind Misconceptions of the Fair Labor Standards Act

• Publication year: 2011
• Pages: 0463

Wage and Hour Myths: Illuminating the Truth behind Misconceptions Of the Fair Labor Standards Act
Vol. 72 No. 6 Pg. 463
The Alabama Lawyer
NOVEMBER, 2011 By J. Bradley Medaris

An Overview of the Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) requires all employers to pay all protected employees no less than the minimum hourly rate (currently $7.25 per hour) and overtime at a rate of one and one-half times the employer's regular rate of pay.¹ These laws apply to all workers who are engaged in commerce or the production of goods for commerce and to employees of all business enterprises which have annual gross sales of $500,000 or more.² Certain employees are exempt from the protections of the FLSA.³ If an employee is improperly compensated, the employee is entitled to all unpaid wages, liquidated damages in an amount equal to the unpaid wages and attorney's fees and costs.⁴

Companies have been hit hard by FLSA lawsuits recently, facing multi-million dollar judgments. Just this year, Walmart lost a case where the allegations involved forcing employees to work off the clock. The jury awarded more than $187,000,000 in damages.⁵ An Iowa farm was forced to pay more than $1.7 million to workers after an investigation by the Iowa Labor Commissioner determined that workers were receiving sub-minimum wages.⁶ The U.S. Department of Labor has been active recently as well, recovering more than $176,000,000 for workers throughout America in 2010.⁷

All members of the bar should become familiar with this law. Obviously, attorneys who typically represent companies must address FLSA compliance with their clients. Attorneys who typically represent individuals likely have several clients who have suffered violations of this law and are entitled to back wages and other damages. Unfortunately, there seem to be many misunderstandings about this law. Some of these myths are so pervasive that many attorneys accept them as true without challenge. The FLSA is a very complex law that can be extremely difficult for the average attorney to grasp. Fortunately, many concepts can be presented easily, and this article seeks to illuminate some of the unfamiliar recesses of this important law.

Myth One-Violations of the Fair Labor Standards Act rarely occur

"Most workers are paid correctly. Everyone knows that we have minimum wage laws. If employers don't want workers to get overtime, they don't let them work overtime. The rules are too simple for there to be too many violations. Maybe there are a few rogue small businesses or maybe a few undocumented workers get taken advantage of, but this is the exception rather than the rule."

Many people share this attitude, including a significant number of attorneys. However, all evidence suggests that FLSA violations are at epidemic levels. Alabama has seen more than a 400 percent increase in FLSA filings since 2005. The federal courts in general have seen an increase across the U.S. from 1,870 filings in 2000 to 6,771 filings in 2010-an increase of over 360 percent.⁸

In 2009, the UCLA Institute for Research on Labor and Employment, the National Employment Law Project and the Center for Urban Economic Development, along with other organizations, released a study researching the extent of violations of the Fair Labor Standards Act among low-wage industries in Los Angeles, Chicago and New York City. This study, entitled "Broken Laws, Unprotected Workers," found widespread violations of wage and hour laws. The highlights (or lowlights) of this study include:

• 76 percent of those employees who worked overtime were not paid the required overtime rate of pay;

• 26 percent of workers were paid less than minimum wage;

• 30 percent of tipped employees were paid less than minimum wage;

• African-American workers suffered pay violations three times more often than white workers;

• Of those workers sampled, 68 percent had suffered at least one pay-related violation in the previous work week; and

• The study concluded that more than 1.1 million workers in the three cities surveyed suffer at least one pay-related violation each work week and the total wage loss equals more than $56 million per week.

According to this report, these violations are widespread and can be found in every industry and business, from small restaurants to international corporations. Even law firms have been successfully sued for violations of this law.⁹

Workers throughout the country are suffering from illegal pay plans. Likewise, many companies are facing huge lawsuits over problems that would be easy to avoid with the assistance of good legal counsel. All attorneys need to be aware of the widespread nature of this problem to help those clients who need wage and hour advice.

Myth Two-All employees are covered by the Fair Labor Standards Act

"These laws cover all workers who are engaged in commerce. As we all know, commerce covers almost every activity that a worker could be engaged in. All workers are therefore engaged in commerce and protected by the FLSA."

The FLSA applies to all employers whose business grosses $500,000 or more annually. The FLSA also applies to businesses that gross $500,000 or less if "engaged in commerce." The term "engaged in commerce" causes a common misconception thanks to decisions such as Heart of Atlanta Motel, Inc. v. U. S.¹⁰ and Katzenbach v. McClung.¹¹ Under the analysis of these cases, Congress seems to have almost limitless power to regulate commerce. In cases analyzing the FLSA, however, the Supreme Court has determined that Congress did not intend to use the full scope of that power in creating the FLSA.

In McLeod v. Threlkeld,¹² the Supreme Court reviewed the legislative history of the FLSA. The Court ultimately determined that the FLSA was not intended to apply to all workers because Congress had originally drafted the legislation to protect all workers "engaged in commerce in any industry affecting commerce" but this language was rejected and replaced with the current form.¹³ There must be some gap between "engaged in commerce" and "engaged in commerce in any industry affecting commerce."

To be engaged in commerce under the FLSA, an employee must be working for an instrumentality of commerce (such as a transportation or communication company) or be regularly using such things as the mail, telephone, Internet or transportation in his job.¹⁴ Using a credit card two or three times a week has been found to not satisfy this requirement.¹⁵ A worker cannot rely upon the argument that because an item previously moved in commerce, he is covered by this Act.¹⁶ However, because all employees of a business which grosses $500,000 are automatically covered by this law, this analysis is only relevant to smaller employers.

Additionally, there are some workers who are completely or partially exempt from the Act (provided the employer complies with certain requirements). Examples of exempt workers include:

• Truck drivers¹⁷

• Farm workers¹⁸

• Computer professionals¹⁹

• Seasonable amusement park workers²⁰

• Outside salespeople²¹

• Teachers²²

• Insurance adjusters²³ and

• Managers (but see Myth Four)²⁴

Police and fire department employees are also partially exempt and are subject to a unique method of calculating overtime based upon the length of their tours of duty.²⁵ These rules tend to further complicate FLSA compliance and have led to several lawsuits recently in Alabama.²⁶

Many states have attempted to fill in this jurisdictional gap by creating wage and hour laws to cover these exempt and otherwise unprotected employees. Alabama, however, has never done so. As it stands, if an Alabama employer is not covered by the Fair Labor Standards Act his employees have no right to minimum wage or overtime.

Myth Three-Workers who are paid a salary are not entitled to overtime

"If an employee is paid a salary, he is paid that amount no matter how many hours he works. This is a good system for the employer because it makes payroll easier. The employee benefits too because he does not have to worry about how many hours he works-he knows what he will be paid each week. Overtime isn't part of a salary."

There is nothing per se illegal about paying a covered worker a salary.²⁷ However, paying a salary does not excuse an employer from paying overtime. Only those types of employees listed in 29 U.S.C. § 213 can work long hours without additional overtime pay. If a non-exempt employee works more than 40 hours in a week, he is entitled to one and one-half times his regular rate of pay.²⁸

Even if the FLSA allows a certain type of worker to receive a salary, these workers must be paid on a true salary basis. Most exempt workers must receive no less than $455 per week regardless of the number of hours worked.²⁹ Deductions from this minimum salary are only allowed in certain situations, such as when an...