Safeguards Can Protect Against Misclassification Lawsuits

As U.S. employers continue to grapple with the surge in wage and hour lawsuits, class-actions charging exempt-status misclassificationoften brought by former employeesare a growing concern, finds a survey report by labor law firm Littler Mendelson P.C.

The survey, completed by HR professionals, C-suite executives and in-house attorneys, measured how employers are being affected by litigation and Department of Labor (DOL) audits focused on the classification of employees as exempt from overtime pay under wage and hour laws, including the federal Fair Labor Standards Act. Key survey findings include:

  • Encountering employee misrepresentation. Among HR survey respondents who have recently been involved in misclassification litigation or DOL audits, 57 percent said they had encountered employees who misrepresented their job duties when they said they were misclassified, usually to claim they were improperly denied overtime pay.
    However, only 33 percent of employers said they were using self-assessments, which provide a statement of exempt duties in the employee’s own words and can be used to counter such misrepresentations.

  • Expressing audit and litigation concerns. Forty-nine percent of respondents were worried about the threat of misclassification litigation or a DOL audit in the near future, mainly due to the potential costs and disruption to their business.
  • Taking protective actions. Employers are taking steps to prepare for exemption challenges. Many have conducted audits to assess exempt classifications (54 percent) or intend to do so in the next year (14 percent). The majority are monitoring trends in exempt-misclassification litigation in their industries.

“The best defense to exemption litigation is advance preparation,” said Lee Schreter, co-chair of Littler’s wage and hour practice, in an interview with SHRM Online. “Employers can plan ahead for this type of litigation and build the necessary evidence today to defend against these claims in the future.”

Strong Evidentiary Records

“Employers often lose or settle exemption cases not because the position was actually misclassified, but because the employer cannot marshal sufficient evidence to counter the plaintiff’s self-serving efforts to downplay their decision-making responsibilities,” Schreter explained. “Employers can effectively counter ‘job deflation’ by creating contemporaneous business records of exempt duties as those tasks are performed, rather than attempting to reconstruct those activities after a lawsuit is filed.”

One of the more effective means for tracking exempt duties can be performance evaluations that ask employees to describe and assess their own performance, Schreter suggested, adding, “This type of evidence provides a written affirmation of job responsibilities in the employee’s own words and can be used to impeach any contradictory testimony.”

While respondents overwhelmingly said they understood the importance of having up-to-date job descriptions and employee performance reviews, many mentioned the ability of their job descriptions to support exempt classifications as one of their biggest concerns.

“One of the most important things to do with this information is to actually look at what the documents tell about the exemption,” said Schreter. “Pull together the documents that would be produced in the pretrial discovery process and review them. For example, I’ve seen job descriptions for a person who is supervising other people, but the document mistakenly indicated that the person did not have any subordinates. Make sure that the job descriptions actually reflect what the person is doing.”

In addition, “Do a litigation analysis that asks what lawsuits have been seen in your industry and what are the likely areas where you could expect a suit in the future,” she advised.

Former Employees Drive Class Actions

Typically, misclassification lawsuits are brought by a former employee who was treated as exempt but is claiming, in hindsight, that he or she should have been nonexempt, Schreter said. Law firms representing these plaintiffs seek to turn their cases into class-action suits.

And while settling the case may make the plaintiff happy, people working at the company may be unsatisfied with the result.

“Often, the former employee’s interest and current employees’ interest are different,” she noted. “When the company makes a decision to settle the case and reclassify exempt salaried employees as nonexempt hourly workers, some of the current exempt employees being changed to nonexempt have been very unhappy about that. It’s been my experience that employees who are exempt typically like to remain exempt.”

Stephen Miller, CEBS, is an online editor/manager for SHRM.


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