Last week we started looking at the pitfalls of settling wage and hour claims out of court. Specifically, we saw that most federal courts interpret the FLSA– as requiring that wage and hour settlements be approved by the US Department of Labor or a court to be enforceable. That certainly seems, well, un-settling at best. Do you really have to wait to be sued or the target of a DOL complaint or investigation–where you are liable for unpaid overtime and an equal amount in liquidated damages– and the employee’s legal fees? In that case, why settle at all? Is there anything you can do to get the target off your back? Let’s look into that after the jump…
(Image from blr.com)
If you want to settle wage and hour dispute that is not already in court and not before the DOL, what do you do? It’s understandable that you might not be eager to call the DOL to supervise a settlement. Here are some options you may want to consider–and, of course, discuss with your friendly, experienced employment counsel:
- Enter into a settlement agreement, drafted and reviewed by an attorney: We know from last week’s post (click here for review) that some courts will enforce an out-of-court settlement, if: a) there is a genuine dispute about the number of hours worked (and for which the employee may be owed wages and overtime) and you can clearly document that; and b) you can show that every effort was made to ensure that the employee(s) had access to counsel or that you took other similar precautions to minimize allegations of overrreaching on your part. If you decide on this route, instead of including express waivers of potential FLSA claims, consider conditioning the agreement on the employee’s affirmation that s/he has been paid all wages owed for all hours s/he has worked for you. While this is by no means a foolproof method, it may strengthen your defense to any subsequent claim by the employee(s). If you are considering this option, speak with local counsel and proceed with caution, however.
- Consider making aggrieved or potentially aggrieved employees whole: If you know or have reason to know that you may not have paid one or more of your employees all wages and overtime owed them, you can pay them the back wages and an equal amount in liquidated damages. That may not sound too appealing to you–especially the liquidated damages part. Remember, however, that you would have to pay at least that amount in a lawsuit or proceeding before the DOL–plus the employee’s attorney fees, plus your own legal fees. If you opt for this route, it behooves you to provide your employees with a notice explaining that you are remedying a discrepancy in pay and offer a release similar to the one described above. Yes, doing so may raise red flags, as some employees might consult with counsel and try to leverage more money from you. On the other hand, it could minimize your risk of expensive and drawn-out litigation if you preemptively make your employee(s) whole before they sue or file a claim with the DOL.
- You could do nothing and wait 2 to 3 years for the statute of limitations to run: Frankly, I am not recommending this option, just pointing out that it exists. Yes, it allows you to avoid letting employees know about potential claims, or making any payments as long as your employee(s) don’t get wise to your ways. However, I don’t think you need me to tell you how risky it is. While the statute of limitations on wage and hour claims is usually two years from the date of violation, in the case of wilful violations, it extends to three years. If you know or have reason to know that you might owe back wages, you open yourself up to allegations of wilful violation, and the longer statute of limitations. If you exercise this option, you expose yourself to significant liability. Besides–OK I’m going to get moralistic on you here–it ain’t right.
- Take proactive steps to prevent potential claims from arising in the first place. If you’ve been following me here at The EmpLAWyerologist, you know that’s my preferred method. Yes, I know it’s much easier said than done, but it saves you the most grief –and money–in the long run. So how do it? You start by making sure that you have properly classified all your workers, so you know who is and is not your employee, who is and is not exempt from minimum wage and overtime laws. Once you know who is eligible for overtime, you make sure you have sound policies and procedures in place and that you consistently enforce them. You make sure that you have effective methods for keeping track of the hours your nonexempt employees work and that you minimize the amount of overtime they work. How in the world do you figure all that out? Do periodic self-audits. By periodic I would ideally recommend every 6 months and not longer than once a year (otherwise the hours and the wages owed can really accumulate). No, you don’t have to figure this all out by yourself. If you do not have competent in-house counsel or HR staff who can take these steps for your company, then strongly consider engaging outside counsel or consultants to work with you. Yes, it costs money, but nowhere near as much money–and time, and energy, and sleepless nights and ulcers–as the alternative.
OK that’s all I’ve got for now. While I’m not committing to leaving Wage and Hour Land completely, next week we will look at something different. See you then!
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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