An $890,000 judgment? Why there’s a good reason to conduct a wage and hour audit

This article, written by Brian Bouchard, was originally published by the NHBR and can be found here.

In wake of recent ruling against NH restaurant company, it’s time to review your firm’s practices

The U.S. Department of Labor on April 25 announced an $890,000 judgment against a New Hampshire restaurant company that owns just two local establishments. The judgment was for several wage and hour violations, including recordkeeping, failure to pay overtime, and misuse of the federal tip credit.

If the $890,000 price tag concerns you as a business owner, it should. This case is not an outlier, as cases like this happen all the time at the state and federal level (and those are just for the violations known about). All too often, our businesses don’t undergo compliance checkups, especially in the wage and hour field where checkups are vitally needed and where they would serve our business the most.

Recent media stories about investigations into the company mentioned above as well as LaBelle Winery and Dos Amigos are uncomfortably prescient. Going through a state or federal Department of Labor investigation is not enjoyable, but it is worse when hefty penalties and back wages lurk on the other side. Federal lawsuits filed by employees over the failure to pay wages are often worse, given the adversarial nature of litigation, the threat of liquidated damages, and the payment of mandatory attorneys’ fees. Class actions are in a class of their own.

Many wage and hour violations can be identified and cured with periodic compliance monitoring. Trust when I say that correcting a violation in advance is far healthier for your bottom line than defending an unlawful practice in court. Wage cases often are not a question of win or lose, but of how much.

Not convinced yet? The Fair Labor Standards Act imposes liquidated damages for wage and hour violations. Liquidated damages are a penalty equal to the back wages owed to an employee. One way to avoid liquidated damages is to convince the court that the error was in “good faith” and that the company reasonably believed that it complied.

Periodic checkups will improve the viability of a good-faith defense (if one is needed at all). Saying simply, “I thought we were in compliance” will not be availing. In the restaurant case, the U.S. DOL found only $445,085 in back wages. The rest appears to be penalties and liquidated damages.

Wage and hour checkups should be a routine business practice. Here are some tips on where to begin:

  • Get back to basics: If asked, could your business produce the time records, I-9 forms (with supporting documents), personnel files, payroll records, benefits records, tips and commission/on target earnings records for all employees within a week or two of being asked? More important, are your business records accurate? Inaccurate time records are an evergreen litigation source for plaintiffs’ attorneys. Employees may clock-in and clock-out regularly but then perform off-the-clock work that isn’t being compensated. Businesses are obligated to track all hours worked for nonexempt employees, and when they fail to do so, an aggrieved employee need only estimate their hours for the payment of back wages and liquidated damages.
  • Focus on the exemptions: Overtime exemptions are nuanced and are occasionally inapposite to a modern economy. Some exemptions are obvious. The company CEO? She’s likely exempt. But is the company bookkeeper really exercising the discretion and independent judgment to qualify for the administrative exemption? Probably not. Overtime misclassifications are costly mistakes because unpaid overtime adds up quickly and there often are not time records to determine the hours worked.
  • Monitor technology use: Time spent commuting generally is not compensable. But if a nonexempt employee sends emails from home in the morning and then drives to the office, the time spent commuting may become compensable.
  • Understand compensable time: Businesses are often surprised about what time is compensable. Travel time, on-call time, lunch breaks, trainings and pre/post-work activities can all be compensable depending on the circumstances. Just because an employee isn’t in the office, doesn’t mean they are not working.
  • Ensure child labor law compliance: New Hampshire has strict child labor requirements, and every year child labor violations feature on the NH DOL’s Top 10 Wage & Hour violations. Any company hiring minors should proceed cautiously. They should carefully check to ensure that appropriate releases have been obtained and that a minor’s hours do not exceed what the law prescribes.
  • Don’t rely on industry custom: I hear it all the time: “Brian, no one in our industry pays their employees for that.” My response is twofold: (1) how empirical is your data really, and (2) industry practice is irrelevant. If you’re in a group of cars going 90 mph and you’re the one who gets pulled over, guess who’s getting the ticket?
  • Don’t ignore industry-specific laws: At the same time, companies should be mindful that certain industries are governed by unique laws. The restaurant industry, for example, has specific requirements for employers utilizing a tip credit and unyielding protocols around tip-pooling.
  • Don’t rely on internet searches: Google is a wonderful tool. Articles like this one are useful tools as well. But when it comes to nuanced questions, there is no replacement for statutes, regulations, administrative decisions and case law. Agencies like the U.S. DOL base their decisions on these primary sources. Companies should get into the nitty gritty of these primary sources, but don’t go fishing in the dark either.
  • Work with qualified professionals: Every company should work with qualified compensation specialists who are facile with the primary sources mentioned above. The FLSA was enacted in 1938. Some of its provisions are arcane and many of its regulations confounding. For example, the FLSA doesn’t even define what constitutes “work.” Knowing what “work” means and when “work” is compensable requires a comprehensive understanding of the structure of the FLSA, its intent and the case law interpreting it. To confound matters further, New Hampshire state law sometimes follows the FLSA, sometimes imposes standards different from the FLSA, and sometimes is silent. Use professionals to un-muddy the waters.