The Fair Labor Standards Act was enacted in 1930 to regulate wage and workplace abuses. While the act is not new, the number of lawsuits and regulatory actions based on alleged violations is increasing. This can result in very expensive litigation that isn’t covered by any of your insurance policies, says Gloria D. Forbes, executive vice president with ECBM Insurance Brokers and Consultants.
Smart Business spoke with Forbes about how to reduce your business’s exposure to FLSA claims.
What types of actions might result in these claims?
These claims come in a variety of allegations but the most common are from misclassification, failure to pay overtime and other similar wage and hour claims.
One of the most common is wrongfully misclassifying individuals as independent contractors instead of employees. Claims can come from regulatory agencies, individuals or groups of individuals. Individuals or groups of individuals will often file claims because they are seeking access to benefits offered to those classified as employees. This could be medical or disability benefits, paid time off or sometimes pension benefits. These claims may start as an issue asserted by one employee, but others will join the suit and the claim my end up with class action status and a number of claimants. This makes these type of actions very costly and dangerous.
Regulatory agencies may bring actions if they feel, through an investigation, that there have been abuses of the system. There are federal regulations to consider and state laws that sometimes call for a more stringent adherence to status. Pennsylvania, for example, passed the Construction Workplace Misclassification Act on Oct. 13, 2010.
What does CWMA require?
The act is aimed at misuse of independent contractors in the construction industry and makes the intentional misclassification of employees a third-degree felony. CWMA states that an individual who performs services in the construction industry can only be classified as an independent contractor if the following three conditions are met: The individual has a written contract to perform the service; the individual is free from control or direction while performing the services; and the individual is customarily engaged in an independent trade, occupation, business or profession.
In addition to the fines the secretary of the Department of Labor and Industry can issue, it can petition the courts to issue a stop-work order. While the bill was aimed at abuse in the construction field, it is thought to be a precursor for judgments in other industries.
Is this the only type of misclassification?
No, often employees will allege wrongful classification of their job status as exempt employees. Because there are regulations related to overtime pay for hourly employees, there are situations when employees assert that they are wrongfully classified as exempt when, in fact, they are hourly or nonexempt. Like claims involving independent contractor status, these actions can end up with many claimants and take on a life of their own.
