Violating the FLSA is Bad Business: Misclassification of Employees can be Costly

          Employers are easy targets for plaintiffs’ lawyers and Department of Labor investigators.  Why?  They are targets quite simply because many employers are sloppy or blissfully ignorant with respect to a workers status under the FLSA, the body of law which governs employees’ rights to minimum wages and overtime pay.  The worst, and thus the most costly, violations occur when employers are calculatedly defiant in complying with the FLSA. 

            Employers are sloppy or ignorant when they “mistakenly” misclassify an employee as “exempt” when, in fact, the employee is a “non-exempt” worker who is by law entitled to the wage protections of the FLSA.  This often occurs because employers simply fail or refuse to understand FLSA concepts such as “salary basis,” or “primary duty,” analysis of which plays a major role in properly determining the employee’s FLSA status.  Inadvertent or “sloppy” misclassifications can be costly. 

            Recently, Wal-Mart was found to have misclassified vision-center managers and asset protection coordinators across the county as “exempt” from the FLSA’s minimum wage and overtime pay requirements.  Because Wal-Mart believed these employees were exempt, the corporation did not pay the employees overtime compensation.  The misapplied exemption cost Wal-Mart over $5,000,000 in back wages, liquidated damages, and penalties.  The Secretary of Labor, Hilda L. Solis warned employers nationwide, regardless of their organizational size that “[m]isclassification of employees as exempt from the FLSA coverage is a costly problem with adverse consequences for employees and corporations… [l]et this be a signal to other companies that when violations are found, the Labor Department will take appropriate action to ensure that workers receive the wages they have earned.”  Smaller corporations would have been crippled by such financial hit.

            Similarly, employers sloppily misclassify workers as “independent contractors” who are, in reality, non-exempt employees.  Labeling a worker as an “independent contractor” – even if there is a contract establishing such a relationship – is irrelevant under the FLSA.  If such a designation dictated the outcome, employers would classify all of its workers as independent contractors to avoid the force of the FLSA.  Instead, federal Courts in Alabama apply an “Economic Reality” test to determine whether a worker is an independent contractor or an employee when the designation is in dispute. 

            Your rights to minimum wages and overtime pay is deeply affected by whether you are an employee within the meaning of the FLSA, or an independent contractor as classified by your company.  The FLSA does not require companies to pay independent contractors a minimum wage or overtime pay.  As such, if you are a worker who has been deemed an independent contractor, a simple “Economic Reality” analysis may prove to be worthwhile. 

            Asking yourself simple questions may point you in the right direction.  In looking to the economic realities of your relationship with the company, ask yourself “are my services an integral part of the company’s business?”  Likewise, ask “is my relationship with the company permanent?” Affirmative responses to both of these inquiries weigh in favor of you being an actual employee, rather than an independent contractor.  Remember, if you are an employee, you are likely entitled to a minimum wage and overtime pay by federal law.  On the other hand, have you invested in the work facilities or in equipment necessary to do the work you perform?  Have you been provided an opportunity to share in profits and losses of the company?  If so, you may in fact be an independent contractor and not entitled to minimum wage and overtime pay protection provided for in the FLSA.  Either way, an in-depth, fact intensive analysis will be helpful in determining whether you have been misclassified as an independent contractor or whether the company classified the relationship appropriately.

            The boldest employers make these misclassifications on a cost/benefit calculation, or “willfully,” and thus, defiantly shirk the FLSA mandates.  Willful violations are defined in the FLSA under 29 U.S.C. § 255 and may be the basis for an aggrieved employee’s double recovery.  Employers bear the burden of proof when an employee challenges an exemption or designation, regardless of whether the misclassification is inadvertent and “sloppy” as in the Wal-Mart case, or calculated and “willful.”  If you believe that you are being misclassified as exempt under the FLSA or as an independent contractor, regardless of the company’s intent, contact an attorney familiar with the intricacies of the FLSA and its economic reality test.