Employee Classification and the Fair Labor Standards Act

Business owners frequently make mistakes in classification of their employees. This is understandable because business owners have a great deal to do in keeping their business effective and profitable for their customers, their shareholders, and their employees.

But it also creates substantial legal risk. In recent years, large groups of employees have even brought class action claims against their employers for failure to pay overtime. Entities ranging from Bed, Bath, & Beyond to the Democratic National Committee have faced major class action lawsuits which can lead to costly settlements and terrible press.

Avoiding overtime payment is counterproductive. Employers who fail to pay overtime may be required not only to pay that overtime, and for their own attorneys in the subsequent lawsuit, but also to pay for the attorneys’ fees for their employees, as well as “liquidated damages” equal to the total amount of overtime.

Defenses exist in some such cases. An employer may not be covered by the Fair Labor Standards Act, which governs overtime. An employee may also be exempt from the provisions of the Act if they fall into one of a certain number of categories. In Seattle, this is particularly common because many employees in computer-related professions are exempt from the provisions of the Act. There is also a good-faith defense that may allow an employer to escape liquidated damages in the event of a trial.

But ultimately, the best way to keep compliance costs down and keep your company and employees productive is to classify employees correctly in the first place. Not only will your costs stay down because of the legal bills, but your employees will be happier and more productive.

Businesspeople at Conference Table
Is this their sixtieth hour this week?

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