$1.4M FLSA Back Pay Award Demonstrates Worker Misclassification Risks

Construction industry and other employers should learn from schooling the U.S. Department of Labor (Labor Department) just gave four Long Island City plumbing and heating companies about the consequences of misclassifying workers as independent contractors, underpaying workers by failing to pay required overtime, and failing to keep required timekeeping records in violation of the Fair Labor Standards Act (FLSA) minimum wage, overtime and recordkeeping requirements. The lawsuit and resulting settlement clearly highlight the growing risks that construction industry and other employers run by misclassifying workers as independent contractors or otherwise failing to pay and maintain necessary documentation proving that the employer properly classifies and pays workers considered common law, non-exempt employees as required by the FLSA.

The settlement resolves a FLSA lawsuit brought by the Labor Department Wage & Hour Division against four related contractors in Perez v. Thomas Andreadakis; Leonidas Andreadakis; Helen Andreadakis; Danica Group LLC; Copper Plumbing & Heating LLC; Copper II Plumbing & Heating LLC; Copper III Plumbing & Heating LLC.. in the Eastern District of New York.

Worker Misclassification Risks Under FLSA Act

Under the FLSA as interpreted and enforced by the Wage & Hour Division, employers misclassify workers by failing to distinguish employees from bona fide independent contractors. An employee — as distinguished from a person who is engaged in a business of his or her own — is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business that he or she serves. For more information, visit here

The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also must maintain accurate time and payroll records. The FLSA provides that employers who violate the law are liable to employees for their back wages and an equal amount in liquidated damages. Liquidated damages are paid directly to the affected employees.

Contractor Lawsuit & Consent Decree Show FLSA Misclassification Risks

The suit arose after Wage and Hour Division investigators found that the contractors misclassified workers, failed to pay required minimum wages and overtime, and failed to keep required records in violation of the FLSA.  Among other things, the investigation revealed that the contractors paid straight time wages rather than time and one-half when employees worked beyond 40 hours in a workweek and attempting to conceal the violations by paying the straight time payments for overtime hours with separate paychecks from a petty cash account.

Additionally, the investigation also revealed that the contractors misclassified at least 25 employees as independent contractors, then paid these misclassified workers a weekly salary that did not compensate the employees at time and one-half when employees worked beyond 40 hours in a workweek. The Labor Department also found the employers also frequently paid many employees late, sometimes requiring workers to wait several weeks to be paid. Finally, the Wage and Hour investigation found that the employers maintained incomplete and inaccurate payroll records.

Under the terms of the consent judgment entered with the U.S. District Court for the Eastern District of New York, the contractors must pay the workers $710,000 in back wages covering the time period between September 2010 and April 2014, and an equal amount in liquidated damages.  The contractors also must take a series of specific corrective actions to improve their payroll recordkeeping, ensure that employees are paid on time each week, reclassify as employees those who were previously misclassified as independent contractors and properly pay them.

DOL Warnings About Misclassification Of Workers As Independent Contractors

Beyond its obvious less about the general dangers for employers that fail to comply with the FLSA minimum wage, overtime and recordkeeping requirements, the lawsuit and Labor Department’s announcement of its settle highlight the growing risks for employers that result from the misclassification of workers as independent contractors.

Echoing a growing series of previous warnings about misclassification abuses by Wage and Hour Division and other federal agencies in recent years, Wage and Hour Administrator Dr. David Weil sent a strong message to U.S. employers about the risk of misclassification of workers and other violations of the FLSA when announcing the settlement of the litigation through the consent decree by stating:

“The misclassification of employees as independent contractors deprives workers of wages and benefits they are entitled to under the law, thereby hurting our economy. It also leads to unfair competition because businesses that play by the rules operate at a disadvantage to those that don’t.”

Jeffrey Rogoff, regional Solicitor of Labor in New York, echoed this warning about the risks of worker misclassification, stating, “Underpaying and misclassifying employees as independent contractors are illegal and unacceptable actions. The Labor Department will pursue all available legal measures to ensure that workers are properly classified and compensated for their work.”

In the face of this and other recent enforcement actions targeting wage and hour violations generally and misclassification of workers specifically, all U.S. employers should review and tighten their worker classification, timekeeping, minimum wage and overtime, recordkeeping and other practices to position their organization to withstand challenges by the Wage and Hour Division, private litigants or both.

 For  Advice, Representation, Training & Other Resources

If you need help responding to these new or other workforce, benefits and compensation, performance and risk management, compliance, enforcement or management concerns, help updating or defending your workforce or employee benefit policies or practices, or other related assistance, the author of this update, attorney Cynthia Marcotte Stamer may be able to help.

Recognized as a “Top” attorney in employee benefits, labor and employment and health care law, Ms. Stamer is a practicing attorney Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, author, pubic speaker,management policy advocate and thought leader with more than 25 years’ experience advising government contractors and other employers, their management, benefit plans and plan fiduciaries, vendors and service providers and others about OFCCP, EEOC, and other employment discrimination, government contracting compliance, and other workforce and operational performance, compliance, risk management, compensation, and benefits matters. As a part of this involvement, Ms. Stamer throughout her career specifically has advised and represented a broad range of employers across the U.S., their employee benefit plans and plan fiduciaries, insurers, health care providers and others about the implications of DOMA and other rules relating to rights and expectations of LBGT community members and others in federally protected classes under Federal and state employment, tax, discrimination, employee benefits, health care and other laws.

In addition to her extensive client work Ms. Stamer also is a widely published author, management policy advocate and thought leader, and management policy advocate on these and other workforce and related matters who shares her experience and leadership in a wide range of contexts.  A current or former author and advisory board member of HR.com, Insurance Thought Leadership, SHRM, BNA and several other the prominent publications, Past Chair of the ABA RPTE Employee Benefit & Other Compensation Arrangements Group, Co-Chair and Past Chair of the ABA RPTE Welfare Plan Committee, Vice Chair of the ABA TIPS Employee Benefit Plans Committee, Vice President of the North Texas Health Care Compliance Professionals Association, Past Chair of the ABA Health Law Section Managed Care & Insurance Section, former President of the Richardson Development Center Board of Directors, and the former Board Compliance Chair of the National Kidney Foundation of North Texas, An American College of Employee Benefit Counsel, American Bar Association (ABA) and State Bar of Texas Fellow, Martindale Hubble Premier AV Rated (the highest), Ms. Stamer publishes and speaks extensively on these and other staffing and human resources, compensation and benefits, technology, health care, privacy, public policy, and other operations and risk management concerns. As a part of these activities, Ms. Stamer is scheduled to speak about Same-Sex Marriages and Domestic Partnerships: Lessons Learned, Unanswered Questions and Best Practices on May 1, 2015 for the ABA RPTE Section 2015 Spring Symposium in Washington D.C.  See also Stamer Talks About “Handling Health Plan Spouse, Dependent & Other “Family” Matters in Post-DOMA World” at SPBA 2014 Spring Meeting  Her publications and insights appear in the ABA and other professional publications, HR.com, SHRM, Insurance Thought Leadership, Health Care Compliance Association, Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, the Dallas Morning News, Modern Health Care, Managed Healthcare, Health Leaders, and a many other national and local publications.

You can review other recent human resources, employee benefits and internal controls publications and resources and additional information about the employment, employee benefits and other experience of the Cynthia Marcotte Stamer, PC here. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile www.cynthiastamer.com or by registering to participate in the distribution of these and other updates on our HR & Employee Benefits Update here including:

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