So, You're Being Sued Personally For an FLSA Violation

Here are five ways to reduce your liability when it comes to being sued personally for an FLSA violation.

So, you own a business and you’re being sued personally for a violation of the Fair Labor Standards Act. How can this be? Your lawyer told you that having an entity would protect you from this exact sort of thing. What gives? And more importantly, what can you do to prevent it from happening again?

Let’s start with the basics. Who is an “employer” under the Fair Labor Standards Act? The FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee....” The FLSA contemplates there being several simultaneous “employers” who may be responsible for compliance with the FLSA.

This expansive definition of “employer” goes not only to the entity, but can encompass officers, managers, and even executives with no direct interaction with the employees. As the fifth circuit said, “[t]he remedial purposes of the FLSA require the courts to define ‘employer’ more broadly than the term would be interpreted in traditional common law applications.”

In deciding whether a party is an employer, “economic reality” controls rather than common law concepts of agency. Does that mean that you, as the business owner, are the “employer” under the statute? Even with your corporate entity there to protect you? Probably yes. The overwhelming weight of authority is that a corporate officer with operational control of a corporation's covered enterprise is an employer along with the corporation and is jointly and severally liable under the FLSA for unpaid wages. In Donovan v. Agnew, the court determined that “corporate officers with a significant ownership interest who had operational control of significant aspects of the corporation's day to day functions, including compensation of employees, and who personally made decisions to continue operations despite financial adversity during the period of non-payment” were employers under the FLSA.

What can you do to reduce your personal liability? The same things you can do to reduce your business liability.

No. 1: Assume that your workers are employees

A court is not going to be impressed with your contract calling your workers independent contractors and will not limit themselves to the definition in your contracts. Courts have instead adopted an expansive interpretation of the definitions relating to employment status under the FLSA.

Instead, the Supreme Court has stated that the economic realities of the relationship govern whether a worker is an employee, and the focal point is “whether the individual is economically dependent on the business to which he renders service ... or is, as a matter of economic fact, in business for himself.”

The safest thing you can do to protect your business, and yourself, is to start from the assumption that your workers are employees and work backwards. Please consult with an attorney before you start throwing out 1099s and find yourself in the crosshairs of a class action lawsuit.

No. 2: Don’t dock your salaried employees’ pay

Many employers, to avoid the hassle of maintaining employee time, will simply put employees on salary. Then, if the employee must take time off, an employer will reduce their salaried pay accordingly. This is a really easy way for a former employee suing you for back-wages to argue that they truly weren’t an exempt salaried employee, but instead were entitled to overtime for all of their time worked. Don’t do it.

No. 3: Don’t modify time cards

Unless you are absolutely, 100% certain the unmodified time on a timecard was inaccurate, and can prove it, do not modify the time card. More than once, evidence about manipulation of time-cards, even if the employer was doing it in good faith, has been the difference between whether a violation was a simple violation of the FLSA, or whether it was a willful violation of the FLSA. Why does that matter? Because ordinarily damages for unpaid wages ordinarily can only go back two years from the time of the complaint. If the violation was willful, that means plaintiffs can go back three years instead. By modifying those cards, you’ve opened your business, and yourself, up to an additional year of damages.

No. 4: Pay for all time ‘worked’

Are you making the employee do something for you? That’s work, even if it doesn’t look like it. Mandatory training and meetings? Work. Emails, texts, and phone calls when they’ve gone home already? Work. Break periods less than 20 minutes? Work. Here’s a good rule of thumb: Would there be negative consequences to an employee if they didn’t do the thing you asked them to do? If the answer is yes, then that’s probably additional work that you should be paying them for.

No. 5: Arbitrate, arbitrate, arbitrate

What’s worse than an FLSA complaint against yourself personally? How about a class action FLSA complaint against yourself personally? The easiest and simplest way to push that off is to 1) have an employment agreement with each and every employee and 2) include a class action waiver in the employment agreement. The U.S. Supreme Court as recently as last year upheld class action waivers in employment contracts as precluding any class action.

This article is meant to be utilized as a general guideline for FLSA lawsuits. Nothing in this blog is intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first.  If you have questions about your particular legal situation, you should contact a legal professional.

Nick Weiss of The Gertsburg Law Firm can be reached at 440-528-1233 or nweiss@gertsburglaw.com.

An audit of your policies can help you avoid the pain of lawsuits. The Gertsburg Law Firm now offers CoverMySix, a one-stop legal audit for your business, led by award-winning litigators and in-house counsel. CM6 minimizes your exposure to lawsuits, investigations, disgruntled employees and customers, and all the damage that comes with them. Learn more about how to protect your business from lawsuits at covermysix.com
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  • Next up: Keeping the Peace: Strategies for Handling Suspected Workplace Misconduct
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  • Keeping the Peace: Strategies for Handling Suspected Workplace Misconduct

    Employers must strike a careful balancing act when investigating possible employee misconduct. Here are some guidelines to follow if your business is ever in that situation.

    If you’re already committed to a full-fledged investigation for employee misconduct, we’ve got you covered on procedure and best practices for employee workplace searches.

    But merely suspecting wrongdoing before the investigation phase is a different story. What should an employer do to protect the status quo—and employee interests—when an issue arises?

    Do your background research

    The company’s employee handbook should be your first stop in addressing potential misconduct. Consult your handbook to find out exactly what the “official” company stance is on the conduct at issue. This step is paramount because one of the employee handbook’s main functions is to put workers on notice of what conduct is prohibited and, equally important, what the consequences may be. An employee handbook should act as the first fair warning against proscribed behavior.

    By the same token, you don’t want to blindside a worker with an accusation not grounded in sound policies. If the handbook language is unclear or incomplete, you’ll want to consider revising and expanding it (coinciding with an informal discussion between a supervisor and the employee). At a minimum, your employee handbook should define categories of “misconduct,” outline the investigation process, notice requirements, effects of disciplinary action on employee salary and benefits, and any appeal procedures.

    It’s also wise to include a statement of company philosophy to reinforce the policies. Injecting purpose into otherwise formulaic procedures can make workers more responsive to protocol.

    Start informally

    Unless the alleged conduct is severe or some risk is clear and present, a gentle hand might yield the best results. If an employee is under suspicion, start by looking into his or her case file and research the employee’s history. This can provide a framework to the situation and establish a pattern of behavior (for better or worse). It may also give you some talking points.

    Then, you or your HR rep should talk with the employee off the record. The goal is to gain insight into what might have happened in a neutral and non-threatening way. Keeping lines of communication open is important, especially in this type of situation where undesirable behavior can stem from discontent or concern regarding something that may not be on your radar. Remember, the company’s role in any inquiry is that of a neutral arbiter, and by representing yourself in this way you can give an innocent employee the opportunity for vindication or expression of discontent.

    If the scenario involves a third party or another employee, consider a round table discussion with all individuals present. When the company is more interested in resolution than punishment, mediation can be a powerful tool, and you should never underestimate the influence of a respected coworker acting as a mediator.

    Set the groundwork for something official

    If an informal resolution isn’t forthcoming, you’ll need to prepare to launch an official investigation.

    In preparation, you should assign an investigator. This person can be a supervisor from another department, an HR rep, or some other person; but it should always be someone removed from the “chain of command” who is objectively neutral.

    Next, decide how to handle the employee who is the subject of investigation during this process. If the suspected conduct is serious enough (especially if it affects a third party), consider placing the employee on paid administrative leave during the investigation. This approach tends to strike a balance between fairness to the employee and the ability to conduct an unfettered inquiry.

    Whatever your course of action, the employee will need to be informed. Where possible, make this a face-to-face conversation to keep things personal and respectful—though, of course, if safety is an issue you can send notice of an investigation or administrative leave by phone or email or in writing.

    It can be difficult to discuss these matters but remembering to adopt a neutral stance and refraining from accusatory language will keep things cordial. If you expect confrontation or some other difficulty, you might want to have another ranking worker in the meeting as well.

    Don’t forget the housekeeping

    If the employee will be removed from the workplace for any period, give him or her the opportunity to take necessary personal items from the office. Conversely, be sure to retrieve company items from the employee’s personal possession.

    And of course: document everything. If for no other reason than to protect yourself from legal liability, document all details of the investigation, from the specific inquiries made, to facts and items discovered, to the company’s final determination. Be sure to set up your infrastructure to smoothly handle documentation, as this will be the basis for your employee database going forward.

    Reach an equitable decision

    Sometimes, deciding what to do when all the cards are on the table is the hardest part—after all, you and your managers will need to stand by the decision that’s made. Your best resources here are the employee handbook, which will hopefully serve as a roadmap for possible outcomes, and company precedent for disciplinary actions, which you can use to narrow your options for a consistent decision.

    In determining a course of action, consult company philosophy on such matters. Counseling or coaching is often favorable when dealing with a generally valuable employee. In the abstract, valuing rehabilitation over punishment tends to preserve and even enhance company culture.

    The last piece to the disciplinary puzzle is deciding whether to cite the violation internally. Doing so will put other employees on notice of the prohibited conduct and its consequences but can also expose loopholes in company policy if you don’t stay consistent.

    Epilogue: EEOC compliance

    Several themes run throughout our discussion: clear and constitutional policies, disciplinary consistency, and good documentation. Abiding by these philosophies also has the attendant benefit of avoiding retaliatory employee grievances under the Equal Employment Opportunity Commission.

    A strategic approach to workplace disputes will pay dividends, so develop your policies and handle each incident thoughtfully and you’ll be sure to do right by your workers.

    This article is meant to be utilized as a general guideline for handling suspected workplace misconduct. Nothing in this blog is intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first.  If you have questions about your particular legal situation, you should contact a legal professional.

    Mark Turner can be reached by phone at 440-571-7773 or by email at mt@gertsburglaw.com. Mark and the attorneys of The Gertsburg Law Firm now offer Cover My Six, a one-stop legal audit for your business, led by award-winning litigators and in-house counsel. CM6 minimizes your exposure to lawsuits, investigations, disgruntled employees and customers, and all the damage that comes with them. Visit www.covermysix.com to learn more about how to protect your business from lawsuits with this brand-new service.


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  • Next up: Successor Liability: How It Impacts Your Business
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  • Successor Liability: How It Impacts Your Business

    Gov. John Kasich signed House Bill 259 on Dec. 22, 2015, that included a provision helping to ensure entrepreneurs will not be penalized in the form of increased workers’ compensation rates, outstanding balances, or uncovered claims costs for assuming space that was previously inhabited by a completely separate business with negative claims experience. Our partners at The Greater Cleveland Partnership and COSE have been a long-time advocate for reforms on this issue in order to avoid unpleasant surprises related to workers' compensation matters for business owners.

    Gov. John Kasich signed House Bill 259 on Dec. 22, 2015, that included a provision helping to ensure entrepreneurs will not be penalized in the form of increased workers’ compensation rates, outstanding balances, or uncovered claims costs for assuming space that was previously inhabited by a completely separate business with negative claims experience. Our partners at The Greater Cleveland Partnership and COSE have been a long-time advocate for reforms on this issue in order to avoid unpleasant surprises related to workers' compensation matters for business owners.

    To date, business owners who started a business or who moved their business to a location that was previously occupied by a completely separate company may wind up inheriting certain workers’ compensation liabilities. A transfer of experience and/or debt—an Ohio Bureau of Workers’ Compensation (BWC) policy known as successor liability—had a negative and unanticipated impact on a business’ workers’ compensation costs. 

    With the approval of this legislation, the Ohio BWC will be required to reduce the transfer of negative experience to a successor employer under certain circumstances. And this legislation paves the way for relief for small business owners that are often unknowingly impacted until it is too late.

    “Business owners have been blindsided when they inherited these liabilities after the move occurs and it jeopardized a small business owner's ability to participate in certain workers’ compensation savings plans,” says COSE Executive Director Steve Millard.

    Due to the passage of House Bill 259, Ohio law now instructs the BWC to establish conditions and criteria that might reduce or waive negative experience to be transferred to an employer who is a successor in interest.

    “My company has opened four restaurants in Northeast Ohio the last few years,” says Operations Manager of Driftwood Restaurants Toby Heintzelman. “In three cases—and despite the fact that our company did not buy these businesses from the previous owners—we were surprised to learn that we were expected to pick up the previous companies’ workers’ compensation history. It made no sense. Moving forward, we’re encouraged that business owners will be responsible for the real risk they bring, not the history or disputes of former occupants.”

    BWC also now provides a limited release of relevant workers’ compensation information before an acquisition or merger occurs. To help facilitate these requests, the Request for Business Transfer Information (AC-4) Form has been created. This form, which both parties must sign, allows the buyer to view any outstanding liabilities as well as the risk experience of the predecessor.

    “The Governor, Ohio BWC, and legislative leaders like former State Representative Barbara Sears are to be commended for listening to the business community and acting on this issue,” says Millard. “The old approach served to prevent, or even worse, penalize new business creation in previously occupied or abandoned facilities. We’re confident these common sense changes will provide small business owners with greater clarity when they move to a new place or open up a new business which will help revitalize Ohio neighborhoods and lead to economic growth.”

     

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  • Next up: Taking Risks is the Key to Getting Interns ‘Career Ready’
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  • Taking Risks is the Key to Getting Interns ‘Career Ready’

    While it may surprise you that the Federal Reserve Bank of Cleveland is committed to taking smart risks, an intern program is a great example of how taking deliberate risks can pay off on your company’s ROI.

    In the lead up to the Third Annual Cleveland Internship Summit on Feb. 27, Mind Your Business will be running a series of articles previewing some of the sessions that attendees will have the opportunity to sit in on. Today’s preview focuses on the legal aspects of internships. Click here to view the other preview articles for this year’s Internship Summit.

    The Federal Reserve Bank of Cleveland’s Jennifer Andrews will be speaking during the “Workforce Preparedness: How Employers Are Getting Interns and New Grads More Career Ready” session during the Third Annual Cleveland Internship Summit. She emphasizes that up and coming intern talent expect to be challenged and are driven to prove their worth. So how do employers help facilitate that ambition?

    This new norm of internship benchmarks is providing students with an experience where they can seamlessly transition into a high performing employee. Jen believes that by pairing technical knowledge with strategic developmental opportunities, employers can create a culture where interns and new grads are valued because they take accountability for their work and always offer to do more than what is expected.

    According to Andrews, “An intern program that is developed in a purposeful manner will cultivate the highly engaged workforce of the future. The Bank views its internship programs as a collaboration between business lines and its students. You have to be willing to try new things, make adjustments, and promote receiving feedback as an expectation in a healthy and safe environment to become a highly sought-after employer for internships.”

    Register today for the Third Annual Cleveland Internship Summit, taking place on Feb. 27, to learn more about internship program best practices, such as what is happening at The Federal Reserve Bank of Cleveland.

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  • Next up: The 10 Questions to NEVER Ask During an Interview
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  • The 10 Questions to NEVER Ask During an Interview

    Here are the 10 questions to put on your Do Not Ask List when you’re interviewing a job candidate.

    The last thing you want to worry about are the people you interview but don’t hire. For every position, there are stacks of applications and running your business takes up too much time for you to remember the details of every interview you conduct. However, those details could wind up costing you a lot of time and money. It’s worth your time to refresh on the basics of the interview to avoid potential complications down the road.

    Even if your workplace is casual, your interviews shouldn’t be

    An interview is like a conversation, but it’s extremely important to remember that it is not a conversation; it’s a formal consultation to evaluate a candidate’s qualifications. Questions that could reveal personal details should never be asked during an interview. As such, the most common pitfall to avoid is casual conversation about personal interests, family, or any other topic that doesn’t have a direct bearing on the position in question. You don’t want to end up on the wrong side of a lawsuit.

    A CareerBuilder poll found that one in five hiring managers have asked questions during an interview that they later found out were illegal. Further, a full third of employers didn’t realize that all the following 10 questions are illegal to ask:

    • What is your religious affiliation?
    • Are you pregnant?
    • What is your political affiliation?
    • What is your race, color or ethnicity?
    • How old are you?
    • Are you disabled?
    • Are you married?
    • Do you have children or plan to?
    • Are you in debt?
    • Do you social drink or smoke?

    While Title VII of the Civil Rights Act doesn’t explicitly list questions that can and cannot be asked in an interview, the consequences of asking these questions in an interview are very real and can be extraordinarily costly.

    For more information on this topic, contact Alex Gertsburg at 440-571-7775 or ag@gertsburglaw.com. Get more legal tips for your business on The Gertsburg Law Firm blog, with new articles every week.

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  • Next up: The Gen Z Hiring Process Needs to Change
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  • The Gen Z Hiring Process Needs to Change

    The traditional approach companies have taken in regard to their hiring process just isn’t going to cut it when it comes to hiring Generation Z.

    One thing that has been identified regarding hiring Generation Z is a skills gap. Many members of this generation struggle with things such as:

    • rigorous self-evaluation;
    • taking personal responsibility;
    • maintaining a positive attitude;
    • taking good care of themselves outside of work; and
    • self-presentations, such as timeliness, organization, production, quality, follow-through and initiative.

    This is a lengthy list and might seem somewhat overwhelming to hiring managers. The good news is I have some tips to redesign entry-level work for Gen Z and the hiring process itself.

    New thinking is needed

    When you first think about acquisition, what probably comes to mind is traditional thinking around the process—campus recruiting, technical skills, specific experience, job postings and head hunters. However, you might need to look at things differently. New thinking involves looking at a broad spectrum and engaging in new ways.

    With that in mind, here are five keys to recruiting Generation Z.

    Key No. 1: Become highly engaged in the hiring process.

    Key No. 2: Highlight examples of personal and corporate integrity.

    Key No. 3: Demonstrate genuine ties to the community and social responsibility.

    Key No. 4: Show them there are opportunities for advancement

    Key No. 5: Think about how you’ll retain this generation while you’re recruiting them.

    All the above directly align with what Generation Z is looking for when accepting a job. If you can share your insight on these items during the recruiting process, you will be that much further ahead.

    After hiring

    Once your job offer is accepted, you must think about how you will engage and retain these new hires. This will likely result in needing to rethink your entry-level positions.

    Some companies might offer assignments of job rotations. The traditional thinking is linear job progression (lateral growth). A new progressive way to think of it is through mobility, being data-driven and with partners. Companies might consider special projects and experiences.

    Next up is thinking through ongoing formal development. Historically, this is done through e-learning, classrooms and technical skills. New thinking suggests experiential learning, soft skills development and apprenticeships. This will require companies to redesign their onboarding process and provide access to different resources.

    In terms of informal development, many companies have inconsistent mentoring and on-the-job learning. Companies will want to think through how to transfer knowledge and provide exposure.

    Creating a company culture has always been key, but unfortunately most companies place the existence of a strong culture in the “nice to have” category. Generation Z is going to expect things such as paid time off (PTO), family leave, wellness policies, etc. It will be important for companies to determine how they can offer these benefits and raise the culture.

    This might seem like a lot to take in, but companies can take small steps to ensure they are recruiting and retaining the best and brightest members of Generation Z.

    Ashley Basile Oeken is president of Engage! Cleveland, a nonprofit whose mission is to attract, engage and retain young, diverse talent to the Greater Cleveland area. Learn more about her organization’s work by clicking here.


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