Overtime Headache

“I TRY TO BE FAIR TO MY EMPLOYEES,” said the owner of a Midwestern waste hauling firm. “A day's work for a day's pay, and I'm doing my darndest to get it right. But what do I get for my efforts? Nasty letters from lawyers who say I'm cheating my people on overtime pay.”

The waste company owner is not alone. The federal government's new overtime laws, which went into effect last August, were designed to cut overtime lawsuits. Instead, they are dragging more companies into court, according to employers' attorneys. The widespread publicity about the changes, which generally shrink the eligibility for overtime pay, caused many workers to think and talk about what they do and how much they earn. The buzz then drove many people to lawyers' offices, where they asked about overtime rights. In the meantime, lawyers who represent employers are also busy, answering calls from clients who want to know how to handle the situation.

Class actions and lucrative settlements are propelling overtime suits, employers' attorneys claim. No data is available on the number of overtime suits filed since the new standards became effective. The Administrative Office of the U.S. Courts, however, notes that between 2000 and 2004, the number of class actions alleging overtime violations for white collar workers nearly doubled.

The new regulations under the Fair Labor Standards Act represented a comprehensive revision of federal overtime law. The rules set new standards for classifying employees as exempt from overtime benefits. The regulations guarantee overtime pay only to workers earning no more than $23,660 per year. Employees who earn $100,000 or more a year cannot claim overtime no matter what they actually do. The previous rules assured overtime only to those earning $8,060 per year or less.

Some 18 states — including California, Colorado, Connecticut, Illinois and New Jersey — have overtime laws that are more worker-friendly than the federal standards. In those instances, the state laws supersede the federal regulations. When state laws do not set overtime pay rules, the federal guidelines will define employee rights. Experts say litigation is more likely in states where laws cover only some aspects of overtime rights and employers have to figure out the interplay between state and federal guidelines.

“I think that there are going to be a lot of employers who try in good faith to navigate between the state and federal laws, but create technical problems for themselves by following one set of laws and not following the other,” Chicago employment lawyer Michael Sullivan told The National Law Journal. “I can't tell you how much confusion this created for Illinois employers.”

Among the new rules most likely to generate a lawsuit is the so-called “duties test,” which focuses on employee daily work patterns. If, for example, a manager can hire, fire or promote, the rules could deny him or her compensation for overtime. As a result, a manager who does not have absolute discretion in those kinds of decisions, even when a more senior manager routinely rubber-stamps the recommendation, is going to insist on overtime pay. Still another gray area involves supervisors who routinely work side-by-side with ordinary hirelings. Many companies that for a long time have not carefully looked at the duties their employees were performing are now rethinking the job descriptions.

As a profitable source of work for plaintiffs' lawyers, the federal overtime rules need attention from all employers, large and small.
— Barry Shanoff
Legal Editor
Rockville, Md.