The Employment Classification Trilogy - Part I of III: The Overtime Exemption Dilemma
By Michael C. Schmidt Partner, Cozen O'Connor | December 18, 2011
As we rapidly reach the end of 2009, it is clear that wage and hour lawsuits continue to make up a large portion of all new cases filed in federal court. In these challenging economic times, hotel employers also recognize the importance of reducing costs, while determining, where possible, how to avoid the more drastic remedy of individual and mass layoffs. But there are pitfalls that employers should try to avoid when reducing perceived costs.
One potential danger is misclassifying employees as "non-exempt," and therefore ineligible for overtime compensation if they work 40-plus hours per week While companies may reap short benefits by cutting costs from not paying premium overtime compensation, the resulting liability and defense costs, if it is determined that employees were misclassified, far outweigh any immediate gains. Indeed, these cases are often prosecuted through class action lawsuits, where the existence of multiple plaintiffs increases the potential for significant exposure to the hotel employer.
In 2009, the ever-changing nature of the workplace and the workforce has also contributed to the wide spectrum of issues facing hotel employers, and the increasing number of overtime lawsuits being filed generally. In the past, an employer had an easier time controlling employees hours worked when the work performed was generally confined to the nine-to-five work day and within the hotel office walls.
However, technology has torn down the office walls, making anywhere and everywhere in the world a virtual cubicle. Employees not only have greater access to company documents and e-mail from home computers, but Blackberries and similar devices allow workers to remain connected to the office and clients anytime day or night. Coupled with the increasing number of employees allowed to telecommute, it is practically impossible for your company to control, let alone know about, all hours in which employees are performing work.
The problem is two-fold. The first is determining how a hotel employer can minimize the liability risk for misclassifying employees as "exempt" from overtime compensation. The United States Department of Labor (DOL) issued new regulations more than five years ago to alter tests used to determine which employees qualify. Yet, many employers still do not understand, or are incorrectly interpreting, the law.
Both the federal Fair Labor Standards Act (FLSA) and most state laws require that non-exempt employees receive overtime pay for all hours worked over 40 in a workweek. The law contains certain primary exemptions from overtime pay (i.e., where the employers are not required to pay overtime) for "any employee employed in a bona fide executive, administrative, or professional capacity . . . or in the capacity of outside salesman[.]" Congress has never defined the terms "executive," "administrative," "professional," or "outside salesman," leaving those terms to be defined through DOL issued regulations.