Executive Briefings

Published May 2008

Wage and Hour Lawsuits: An Expensive Price to Pay for Ignorance

Lindsay Edmonds Wickman

In an age of economic uncertainty, corporations cannot afford to be ignorant of wage and hour laws. If they are, it will cost them.

“When the economy gets bad, the unemployment rate starts to creep up, and [that] is the single largest predictor of employment-law filings,” said Shanti Atkins, president and CEO of ELT, a provider of online corporate compliance training courses. “If you lose your job, the option of a lawsuit is a whole lot more attractive.”

An estimated 70 percent of employers are noncompliant with wage and hour laws, according to the U.S. Department of Labor. And noncompliance is a pricey mistake: According to a 2007 study by New York University School of Law Professor Samuel Estreicher, the average settlement is $23.5 million for claims filed under the Fair Labor Standards Act, the federal law that establishes job-classification, overtime-pay and record-keeping standards.

The best weapon to battle this growing trend is training.

“Education in this area is so beneficial because the level of knowledge among frontline employees and managers is so poor,” Atkins said.

As with sexual harassment or discrimination, a company can use training as an affirmative defense in wage and hour litigation, which can help reduce settlements and damage awards.

“Affirmative defenses are the double ROI of training,” Atkins said. “If you can prove you’ve done training, you can go into a courtroom and say: ‘Judge, we did the right thing. We had a preventative program in place. We tried to contain this. We should be absolved of liability in this case or, at a minimum, our damages should be reduced.’”

The most common forms of wage and hour litigation are employee misclassifications and off-the-clock work. Misclassification happens when an organization classifies an employee as exempt from overtime when in actuality they are eligible for it. Off-the-clock claims occur when an employee is not compensated for all of their work time.

“[The laws] in this area were developed more than 50 years ago and were designed for a manufacturing versus a service-based economy,” Atkins said. “While they’re clunky and antiquated, they can also be very technical. And it’s lucrative to pursue these lawsuits. Why? [Because if] a large organization messes up on something with one individual employee, they’re probably screwing it up for a bunch of people.”

For wage and hour compliance training to be successful, corporations must ensure training is sensitive to state law and that the content is scenario-driven.

“If you did training in this area and it was just a bunch of text on a screen, you would lose people,” Atkins said. “They wouldn’t follow it. If it’s scenario-driven and people actually see these issues come to life, it’s going to be much more effective.”

The best platform for this type of training is e-learning.

“When you talk about training and wage and hour, you’re talking about training an enormous number of people,” Atkins said. “It’s all of your employees, and it’s all of the managers managing those employees. It’s a large majority of the population. The only practical way to do training in this area on an ongoing, meaningful basis is using online training.”

Lindsay Edmonds Wickman is an associate editor for Chief Learning Officer magazine. She can be reached at editor@clomedia.com.

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