Suits on Overtime Hitting Big Firms

By Brooke A. Masters and Amy Joyce
The Washington Post

Tuesday 21 February 2006

Employers paying to settle many cases.

Large employers around the country, from retail giants Wal-Mart Stores Inc. and Lowe's Cos. to tech firms IBM and Electronic Arts Inc., are being hit with state and federal lawsuits alleging that they systematically failed to pay overtime to hundreds or even thousands of employees.

And many of the cases are bearing fruit.

Earlier this month, Swiss financial giant UBS AG agreed to pay up to $89 million to settle several state and federal lawsuits filed by financial advisers who were improperly classified as exempt from overtime. Insurer Allstate Corp. agreed last fall to pay up to $120 million to nearly 3,000 claims adjusters in California. Janitors who cleaned stores for Southern California grocery chains Albertsons, Ralphs and Vons won a $22.4 million settlement in 2004.

Although there are no comprehensive statistics, actions filed under the Fair Labor Standards Act - most of which are overtime cases - shot up 86 percent between 2000 and 2004, to 3,617, according to the Administrative Office of the US Courts. In contrast, labor cases in general rose 30 percent over the same period, the most recent for which figures are available.

There also has been an upsurge in multi-plaintiff overtime lawsuits in New York, California, Illinois and other states that have tough overtime laws and class-action rules that are favorable to plaintiffs, lawyers said.

Wage and hour violations are the "most frequent workplace violations today," said Joseph M. Sellers, a Washington-based civil rights and employment lawyer.

The suits stem from state and federal laws that require employers to pay time-and-a-half to workers who put in more than 40 hours a week. Salaried managers and independent contractors are exempt - unless their salaries fall below a certain threshold. Exempt categories are carefully defined to prevent employers from simply using the titles for workers to avoid paying overtime.

Corporations say that the classification rules are contradictory and confusing and that a 2004 update of federal standards added to the confusion, resulting in the growing number of lawsuits. Employees say profit-starved firms are pushing them to work longer without compensation. And plaintiffs' attorneys have become engaged with the issue because, though an individual employee's lost wages may be small, overtime violations usually involve large groups.

"A lot of companies tried to drive up their short-term results by misclassifying employees, giving them fancy titles but no managerial responsibilities and not paying them overtime," said Richard T. Seymour, a Washington lawyer who represents employees in cases around the country. "As people wake up to the fact that they are supposed to be paid overtime ... there is tons and tons of litigation."

The US Department of Labor also enforces overtime standards, and the amount of back wages collected has been going up due to its efforts, too. In fiscal 2005, the department won more than $119 million for nearly 189,000 employees, a 26 percent increase in back wages won compared with four years earlier and an 11 percent increase in the number of workers aided.

Victoria A. Lipnic, assistant secretary of labor for employment standards, said overtime violations tend to fall into several categories: One major problem involves off-the-clock work, in which employees work longer hours than what appears on their time cards. Technological changes such as e-mail, online training programs and BlackBerrys also have blurred the lines between work and free time and made it less clear when overtime is owed. "You have an increasing disconnect between the regulations and the economy," said Bill Nolan, an attorney with Squire Sanders & Dempsey who defends employers.

Another common overtime complaint occurs when employers pay the hourly rate for extra hours rather than time-and-a-half.

But most of the biggest collective-action cases stem from the process of classifying who gets overtime and who is exempt. For big employers, an incorrect classification may involve hundreds of workers.

"For many years, if not forever, there was not any rigorous enforcement of overtime standards, and a lot of employers got pretty lazy" about making sure workers were properly classified, said California attorney Brad Seligman, who argued a 2004 class-action overtime case against the Sav-On Drugs chain before the California Supreme Court. "Labor lawyers discovered that these cases were amenable to class-action treatment, and these employers were sitting ducks."

The 2004 update of federal overtime laws made millions more low-paid workers automatically eligible for time-and-a-half pay by raising the weekly salary limit for mandatory overtime from $155 to $455. The update also made controversial changes to the standards for determining whether an employee is a manager. The fight over the federal rules drew public attention and prompted some states to enact their own, tougher overtime standards.

"Employees are becoming aware of their rights and stepping up to do something about it," said Jason Justin Swartz, a plaintiff's attorney who has filed a class-action case in New York alleging that Wal-Mart required employees to attend off-the-clock meetings and required them to start work earlier than they were allowed to clock in.

Employers and their lawyers acknowledge that there is a systemic classification problem, though they say the problem is that, despite the 2004 update, many overtime laws date back to the New Deal. Multi-state employers also face varied and sometimes conflicting requirements - California and New York, where plaintiffs have won some of the largest judgments, have particularly strong protections for workers. In Illinois, the legislature responded to criticism of the new 2004 federal standards by passing a state law that reinstated the old standards. Now employers there have to comply with both. "The rules are so complicated, even the best-intentioned employer has a hard time being in compliance," said Michael Eastman, director of labor policy for the US Chamber of Commerce.

Lawyers on both sides of the overtime debate say they expect the court battles to continue. Employers continue to defend their practices, and the overtime area has recently drawn the attention of some of the largest and best-funded class-action plaintiffs' lawyers. "I look for several more years of litigation," said Seymour, who does an annual report on employment law trends. "It's [in its] very early days."