The Expense of Being Wrong

It can be a fairly expensive mistake to misclassify someone as exempt or pay a nonexempt person incorrectly under the FLSA, especially if it’s considered willful.  In a recent case here in Colorado reported by the Mountain States Employers Council, McGrath v. Central Masonry Corp., the company learned the hard way that “willful” can be defined pretty broadly. 

The company failed to pay overtime to one of its employees and instead instructed him to work out his hours so he didn’t go into overtime.  He wasn’t able to adjust his hours enough and still went into overtime which the company refused to pay.  When this ended up in court the company called as witnesses other nonexempt employees who testified that the company policy was not to pay overtime.

The jury concluded that other nonexempt employees following a company policy did not constitute expert witnesses, and that the company was in willful violation of the FLSA because there was no advice sought from expert sources.  Sometimes I wonder how these types of situations ever end up in court.  I’m betting that somewhere along the line a lawyer suggested that the company settle because this wasn’t going to be a pretty case.  But it did go to court and so can provide a good lesson for the rest of us.

When the DOL considers violations of the FLSA to be willful, they can extend the recovery of wages from two years to three years, and they can also add a civil penalty of up to $1,100 per violation.  I heard from one attorney that this penalty can be applied per day.  For illustrative purposes we’ll say this employee worked one hour of overtime per week for 3 years at $10/hour, and we’ll give him 2 weeks of vacation each year.  So the company could potentially owe $10 * 1.5 * 50 weeks * 3 years for a total back pay of $2,250.  But the real hit would be if the DOL chooses to fine the company in the form of the civil penalties at $1,100 * 250 days per year * 3 years for a total of $825,000.  This would be in addition to the attorney’s fees that the company will now owe as a result the court case, likely both theirs and the plaintiff’s.

So lesson learned here, make sure that if you don’t know the answer, you’re seeking a credible source for your information.  In this economy a fine of almost one million dollars might be the straw that breaks the camel's back.

Darcy Dees works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has been working in Compensation for over 5 years now and recently attained her Certified Compensation Professional (CCP) designation.  She spends what little free time she has hiking and reading.

Image:  Creative Commons Photo "Expensive!" by Joe Shlabotnik

Comments

[Paul Weatherhead]

Wow! My eyes are wide-open now!

[elisheva]

Is this civil penalty paid to DOL or the employee? Is this only awarded if DOL prosecutes?

[Darcy Dees]

The civil money penalty is only pursued if the violation was willful, usually proven by either repeated violations or knowingly making the wrong decision.

I honestly don't know if this money goes to the employee or the DOL. Do any other readers know who gets to keep the money?