Misclassification discovery might prompt collaboration with DOL

By Allen Smith Feb 20, 2007
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Department of Labor (DOL) opinion letters sometimes tip off HR professionals that some of their employees have been misclassified under the Fair Labor Standards Act (FLSA) before employees recognize the mistake. Going to the DOL for help may seem like turning yourself in. But it often is employers’ best option, according to Lee Schreter, an attorney with Littler Mendelson in Atlanta, in a Feb. 9 interview with HR News.

One of the most troublesome areas of the FLSA classifications is the administrative exemption. The administrative exemption remains “the most difficult for employees and employers to understand and try to apply,” Schreter said. Litigation under this as well as all of the FLSA exemptions “really is on the rise.”

Recent administrative exemption opinions

Litigation over the administration exemption has mushroomed in the financial services industry, particularly over whether brokers and financial advisors fit within the exemption, said George Voegele Jr., an attorney with Cozen O’Connor in Philadelphia. He told HR News that there has been much litigation over which high-ranking fire and police department positions meet either the administrative or executive exemption.

The DOL most recently clarified who fits within the administrative exemption in two opinion letters issued on Jan. 10, determining that:

    • A copy editor and senior copy editor did not fit within the administrative exemption (FLSA 2006-45, dated Dec. 21, 2006).

    • Location managers in the film industry did (FLSA 2006-46, dated Dec. 21, 2006).

Just because an employee does not fit within one exemption doesn’t mean that person necessarily is nonexempt. The exemptions are not mutually exclusive, Schreter noted. So, if a senior copy editor supervises two or more employees, he or she might fit within the executive exemption.

Schreter said the two recent opinion letters didn’t surprise her, but she was startled by a DOL opinion letter ( FLSA 2006-42, dated Oct. 26, 2006, and issued Nov. 21, 2006), determining that help-desk workers did not fit within the administrative or computer professional exemption. Schreter said that she was “very disappointed” by this conclusion, saying it took “far too narrow” a view of the exemption.

Opinion letters aren’t the final word on exemptions, but courts do afford them deference. “They are a very strong guide as to what the DOL believes the law should be,” Voegele observed. Sometimes courts contradict opinion letters though, which is why checking with an attorney before reclassifying is prudent, he added, to “make sure you’re on the right track.”

Corrective options

When an opinion letter is a true barometer of an FLSA misclassification, an employer has several options. These may vary depending on whether just one or hundreds of employees would be affected, Schreter observed.

Doing nothing is the worst option, she cautioned, because inaction may line an employer up for a willful violation of the law and lead to an award of liquidated damages.

Another option, which Schreter dubs the “Hail, Mary approach,” is to reclassify the position and pray that the employee will not sue before the three-year statute of limitation for claims of willful violation under the FLSA has run. The statute of limitations is longer under some state wage and hour laws, such as in California, where it is four years, she noted.

Or the employer can reclassify the position and issue back wages to cover what is owed. Schreter said she knows some employers have done this with success, and often “employees view this as the right thing to do.”

But she’s also seen some employers pay back wages and then, as though waking up with a hangover, face FLSA claims from workers “who have the audacity to sue you” despite the payments and the signing of releases. The employers are “stunned that the releases do not work,” and the costs of ensuing litigation can become “a real nightmare.”

DOL involvement

The best option, according to Schreter, often is “to go to the DOL and say, ‘we saw the opinion letter and think we misclassified and would like to fix it and would like your supervision in doing so.’ ” Schreter cautioned that “I don’t pretend to speak for the DOL,” but said that the agency is receptive to this type of arrangement.

One advantage of DOL supervision of the payments for back pay is that then a release will be effective under the FLSA, she remarked.

“The real benefit to employers not only is getting the release, but the real psychological advantage of being able to say, ‘We found the issue and went to who can help, which is the DOL,’” Schreter added. Employers have found this approach has “meant a great deal to employees,” who believe the employer did the right thing, and, as a result, are less likely to sue under state law.

Allen Smith, J.D., is SHRM’s manager of workplace law content.

Related articles:

IT support specialists are not exempt, DOL states, HR News, Jan. 9, 2007.

Step by Step, HR Magazine, February 2005.

White-Collar Wrinkles, HR Magazine, December 2004.

For the latest HR-related business and government news, go daily to www.shrm.org/hrnews.

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