Four Steps to Defend Against Wage and Hour Lawsuits

Wage and hour class action litigation has grown steadily in recent years and this trend is expected to continue. “Wage and hour cases in particular have yet to slow down even as the economy is starting to improve," observed Gerald L. Maatman Jr., a partner at law firm Seyfarth Shaw and editor of the firm's Workplace Class Action Litigation Report. "For most companies that is their Number 1 exposure—and we expect to see even more and bigger cases brought in 2011,” he noted.

By following the guidelines below, HR managers can help avoid such claims and ensure their company’s ability to defend itself should legal challenges arise.

The Best Defense Is a Good Offense

The best way to avoid costly litigation is to perform regular audits and reviews of employee job functions and payroll processing. Laws regulating employee pay vary by state and change as new legislation is passed and case law developed. In addition, job duties and compensation structures evolve over time. Either of these scenarios can mean that policies and practices that had been acceptable (such as classifying a group of employees as exempt from overtime under the federal Fair Labor Standards Act and state wage and hour laws) may need to be revised.

It is possible that a rule or policy has a different effect than intended. A common example is the rounding of time records. Federal regulations allow rounding as long as it is used “in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked,” according to the U.S. Code of Federal Regulation at 29 CFR 785.48(b).

A review of the pay process may verify that the rounding rules are properly applied, but it’s possible that the net effect of rounding is still negative. For example, if the company’s employees tend to arrive a few minutes early and stay a few minutes late, they may be regularly hurt by the rounding rule. If that is the case, it is advisable to revise the rounding policy to avoid claims of improper rounding.

By completing regular review of job functions and pay practices, HR professionals can ensure that any necessary changes are made in a timely fashion and thus help protect the firm from lawsuits.

Data Is Your Friend

When it comes to defending against a lawsuit, information is key. Data (some types that may seem obvious and others that many may not even know exist) can directly contradict plaintiffs’ claims, but only if it is collected and properly maintained. Below are four suggestions to ensure the company has what it needs to defend itself.

1. Maintain accurate and complete employee records.
When faced with a class action lawsuit, it is the employer’s obligation to identify potential class members and provide relevant information about those employees. This can be time consuming and costly when records are only maintained in paper files and are incomplete. Electronic employment histories indicating hire date, termination date, dates of any leaves of absence, as well as tracking any changes in job, supervisor, work location, state of employment, work schedule and pay rate are critical in identifying potential class members. Additionally, such information enables investigation of claims by location, supervisor, shift, etc. Differences across these measures are often useful in defending against class certification because they are evidence against a “common policy” affecting the group.

2. Retain pay records on a weekly basis, regardless of pay schedules.
Although pay is calculated on a weekly basis, oftentimes such records are only maintained at the pay period level (bi-weekly, semi-monthly, or even monthly). Many wage and hour claims involve payment for additional work time. To correctly value that time, it is important to know how many hours were worked in each week so that any relevant premiums (such as time and a half for overtime) can be properly applied. Such information can be impossible to determine from multi-week data, and without detailed records the benefit of the doubt must be given to the employees.

3.Track edits to time records.
Edits to time records for non-exempt employees are inevitable. However, keeping track of what changes are made, by whom and why is very important when defending against claims of malicious edits. This is particularly true for instances where edits remove or reduce paid time.

It is useful to have documentation of the employee’s approval of the edit. Such documentation can negate claims of malicious edits altogether or serve to identify certain locations and managers where a potential problem may exist. As with the job functions and pay processes discussed above, regular review of editing behavior can identify any possible concerns, enabling HR representatives to resolve them before a costly lawsuit is filed.

4.Preserve key data in electronic format.
HR professionals are aware of requirements to retain historical time and pay records but they may not be aware of the implications of how such information is stored. In fact, many firms outsource time and pay systems to outside vendors and rely on those firms to maintain the data. It’s not until faced with a lawsuit that many firms request their own time and pay records from those vendors and learn that the data cannot be quickly retrieved or is only available in paper or pdf formats.

Delays waiting for data and transforming paper or pdf information into useable electronic format can be very costly. It is important to understand how outside vendors store data and the process for retrieving information from them, preferably before faced with a pending legal action.

Other Data Sources

In addition to the standard time-and-pay records, other types of collected data can be used in defense of a class action matter. For example:

• Security-swipe histories (recording when employees swipe in or out of the building or parking structure) can provide a definitive measure of how much time employees are on-site.

• Phone and computer recordscan yield a reliable measure of work time for employees who must be on the phone or on their computers to perform the job.

These records are useful in calculating any overtime that may be owed to employees alleging they are improperly misclassified as exempt and are due pay for all overtime worked.

The exact types of data available and the ease with which they can be collected and stored will vary by firm, but HR representatives who identify possible data sources and ensure their collection will be well-prepared if ever faced with such a lawsuit.

Deborah Foster, Ph.D., is an economist in the L.A. office of Welch Consulting. She focuses on wage and hour cases as well as race and gender discrimination claims. Dr. Foster received her Ph.D. in economics from Michigan State University.

Related Articles:

Well-Rounded Timekeeping, HR Magazine, March 2011

Wage and Hour Litigation Continues to Snowball, SHRM Online Legal Issues, January 2011

Employer, Audit Thyself, HR Magazine, February 2003

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SHRM Online Compensation Discipline