Longer hours lead to lawsuits over pay

With its name still fresh on Fortune magazine's "best places to work in 2002" list, Starbucks Coffee Company announced in April that it will pay up to $18 million to settle a lawsuit filed by more than 1,000 angry managers of its California stores.

The managers claimed they were forced to spend long hours doing nonmanagerial tasks but were denied overtime pay.

As the US workweek grows longer, overtime-pay issues are heating up.

Retail giant Wal-Mart finds itself embroiled in a legal battle involving allegations of unpaid overtime by hourly workers.

In May, the Labor Department filed a lawsuit against Tyson Foods, Inc. to recover back wages for workers who were not paid for time spent putting on and taking off work clothing and protective gear.

Other high-visibility companies are now spending millions of dollars to settle cases brought under federal and state laws that require overtime pay for such "nonexempt" employees.

And overtime has become an issue at higher levels. Managers, professionals, and office and sales workers are challenging employers who classify them as "exempt" employees beyond the reach of federal and state overtime-pay provisions.

The federal law governing overtime pay, the Fair Labor Standards Act, is enforced by the US Department of Labor, and any employee can touch off a federal investigation with one call.

A growing number of white-collar workers are picking up the phone.

"Misclassification of employees under the FLSA is rampant," says Charles T. Huddleston, a partner in the law firm Arnall Golden Gregory LLP in Atlanta. The price employers pay "for misclassifying employees can be up to two years of unpaid overtime, doubled by statute, plus attorneys' fees."

Who qualifies as 'exempt'

There are four white-collar exemptions to the minimum-wage and overtime requirements of the FLSA: executives (managers), administrators, professionals, and outside sales representatives.

"To be exempt, an employee must fall under one of these categories and be paid on a salary basis," says Rob S. Ghio, partner and head of the employment-law group at the firm Arter & Hadden in Dallas.

The exemptions hinge on the actual duties performed, however, not on the job title or method of payment.

"Exempt workers manage, think, direct, supervise, and establish," says Neil Martin, a partner in the labor and employment section of Houston law firm Gardere Wynne Sewell. "The more routine the task, the more mundane the assignment, the more manual the work, the less is likely that the workers are exempt."

More than 60 percent of the job growth over the past decade was among employees classified as managers and professionals, jobs in which long workweeks are considered typical.

Nearly 30 percent of managers and professionals work 49 hours a week or more, according to the latest data from the Bureau of Labor Statistics. Employers often toss these employees, along with administrative and sales workers, into the exempt classification, regardless of the actual tasks they perform.

What you do vs. what you are

The most common overtime pay complaint today rests with the white-collar classifications, and employers are losing more of these cases. Last year, Rite Aid Corp. paid $25 million to 3,000 managers and assistants. Bank of America Corp. settled with some 6,000 personal assistants for $22 million.

Employers may forget that "the law looks beyond form to substance," notes Linda Usoz, an employment attorney in the San Jose office of Coudert Brothers. "Calling an employee a 'senior advisory engineer,' or some other title that connotes management, does not make the position exempt."

Last Year, Pacific Bell paid $35 million to settle a suit by 1,500 engineers who alleged they worked 50 hours a week but were paid for only 40.

"One red flag is if an employee works alone and does not exercise independent judgment. Such employees may very well be hourly employees and entitled to overtime pay," says Robert Skousen, head of Los Angeles law firm Skousen & Skousen.

A jury found against the Farmers Insurance Group in a $90 million verdict in 2001 for failing to pay overtime to 2,400 claims adjusters who argued that they are not exempt "administrators," but more like production workers.

Overtime-pay cases are multiplying because more workers are employed in positions that employers commonly claim are exempt, and because the workweek is steadily growing longer.

Average overtime for manufacturing workers has inched up from 2.8 hours a week in 1980 to the current 4.4 hours a week.

It's far more difficult, however, to gauge the workweek for white-collar workers, whose employers are not subject to the same record-keeping provisions.

One way to establish an accurate picture of the number of hours logged by managers and professionals is to dig down into industry studies.

A survey of workers in the fast-growing medical-device industry, for example, found that employees average 50 hours a week. Professionals in that industry average 50 to 59 hours a week, with an additional 8 percent putting in 60 hours a week or more.

Mr. Martin believes "many employers play the classification game to skirt the overtime issue," but notes that the law is often unclear.

Mr. Ghio agrees, noting that "sorting out the white-collar exemptions is difficult, because the statute and regulations really haven't kept up with the changing workforce, so often you are trying to force square pegs into round holes."

The concept of the exempt white-collar worker was developed by the Department of Labor more than 50 years ago, according to Charles G. Tharp, professor of human-resource management at Rutgers University.

"It was based upon a world of work that was much different from the world we live in today," he says. "Reform in this area is long overdue."

Does your boss owe you money?

Workers who are classified as exempt but feel they are being asked to work an excessive amount of overtime should consider taking action, says John A. Challenger, CEO of Challenger, Gray & Christmas Inc., an outplacement firm.

"Talking with the boss or human resources might be a start," he says. "If there seems to be no viable recourse, and there is little else redeeming about the job, then it would make sense to start looking for a better place to work."

The work you actually do – not your job title – determines whether you are an exempt employee under the law. Employees with questions about their status under the Fair Labor Standards Act (FLSA) can visit the US Department of Labor's website (www.dol.gov) or call its toll-free help line (1-866-487-9243) for referral to their local labor department office.

Labor Department investigators can protect the anonymity of employees who report possible FLSA violations.

Donna Fields Goldstein, a labor and employment attorney and partner in Manatt, Phelps & Phillips in Los Angeles, notes that white-collar employees should be aware that state law may differ from federal law.

"For example, in California, the salary requirement for an exempt executive or administrative employee is two times the monthly minimum wage or $28,800 per year," Ms. Goldstein says. The outdated federal salary requirement is only $250 a week, or $13,000 a year.

Where state law sets higher standards, it prevails over the federal statute.

If you receive overtime pay, make sure it's for all overtime hours. Generally, all time spent in the service of your employer must be counted in computing your hours. If you eat lunch at your desk and answer the company phone, you should be paid for that time and the hours should be counted in your total for the workweek.

In addition, labor experts recommend checking the pay rate used to calculate overtime pay. Your regular rate includes not only your hourly rate, or your salary divided by the hours you work, but any other forms of pay specified in the FLSA, including promised bonuses. Overtime pay must be at least one-and-one-half times your regular rate.

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