DOL Recovers One Million Plus in Overtime Back Wages and Penalties for Employer’s Misclassification of Employees

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February 11, 2011

Part of President Obama’s enforcement agenda has been to direct the Department of Labor (DOL) to vigorously enforce the federal wage and hour laws and, particularly, the laws pertaining to exempt and non-exempt employees under the Fair Labor Standards Act (FLSA). Recently, the DOL assessed a huge sum against an employer for incorrectly classifying non exempt employees as exempt employees.
The FLSA provides an exemption from both its minimum wage and overtime pay requirements for workers employed as bona fide administrative employees. However, to qualify for this exemption, certain criteria must be met. First, an employee must be paid on a salary basis at a rate not less than $455.00 per week. Second, the employee must perform work directly related to the management or business operations of the employer, and must be responsible for exercising independent judgment or direction with respect to matters of significance. These criteria are defined in further detail in the FLSA regulations.
United Healthcare (“United”) is the largest single health insurance carrier in the United States. The DOL started an investigation of United with regard to employees that may have been misclassified as exempt administrative employees. DOL investigators conducted 90 employee interviews and reviewed time and payroll records for over 21,000 employees. The DOL then determined that United incorrectly classified employees in a number of different occupational categories as exempt administrative employees, when they were actually non-exempt, and thereby violated the FLSA by denying them overtime pay for hours worked over 40 in a work week. The DOL also discovered recordkeeping violations regarding the number of hours that had been worked by employees who had been misclassified. The DOL further determined that United failed to consider certain compensation paid to employees in determining their regular rate of pay. The regular rate of pay is the base rate used to determine overtime pay. The DOL found that the violations applied to 479 United employees.
The DOL assessed United a total $934,551.00 for the overtime pay violations and the other violations of the FLSA rules, and $104,280.00 in civil penalties.
This case demonstrates that President Obama’s agenda of enforcing existing laws defining employee rights and entitlements continues. In light of the enforcement efforts, it would be prudent for all employers to review their wage and hour practices with regard to their employees and, particularly, to ensure the employer’s employees have been properly classified. An ounce of prevention at this point may save a bundle in the future in terms of costs, damages, and administrative time.
If you have questions regarding the above, please contact any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware

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