Wage and Hour Laws: No Place to Cut Corners

Today I learned about a newly released study that contains some disturbing conclusions about wage-law violations involving low-wage workers.  The 72-page study is titled "Broken laws, Unprotected Workers:  Violations of employment and labor laws in America’s Cities" and surveyed over 4,000 workers in low-wage industries in three of the largest U.S. cities: New York, Los Angeles and Chicago.  What they found is shocking.

Seventy-six percent (76 percent) who had worked overtime the previous week were not properly compensated for it at time and half.  Twenty-six percent (26 percent) were being paid less than the minimum wage.  More than seventy-five percent (75 percent) of those interviewed earned less than $10 an hour.  The most common violations identified in the report are minimum wage violations, working off the clock violations, and failure to properly compensate for any overtime that was worked.

One of the authors of the study says the results represent a “widespread phenomenon across the low-wage labor market in the United States.”  Nonetheless, the authors also concede that many low-wage employers comply with wage and hour laws, but that many small businesses feel competitive pressures that compel violations.

While competitive pressures explain why the rules get bent and the law is ignored, it does not excuse it.  In response to the report Labor Secretary Hilda Solis says she's going to hire 250 more wage-and-hour investigators.  So in a perverse way the report is a mini-stimulus package.

But all kidding aside, violations of wage-and-hour laws are no laughing matter. It is also not a phenomenom that's limited to small employers.  Wal-Mart and Starbucks have made headlines in recent years due to wage-and-hour claims.  Only in those cases, the large number of employees impacted by the practices supersized those cases into class action lawsuits.

We've previously talked about how to protect yourself against wage-and-hour violations on this blog, but it always pays to learn from other people's mistakes.  Here are a few bloopers from the big boys club:

1. Wal-Mart faced more than 80 wage and hour cases.  The common thread that connected those dots was an allegation that employees were required to work off-the-clock (time that was not compensated) and also work through required rest and meal breaks.  Sixty-three of those cases settled to the tune of $640 million, but those settlements did not occur until after the company failed to persuade a California jury and was hit with a $172 million judgment AND had an encore in Pennsylvania where the jury came back with a $187 million judgment.  After you do the math you'd be motivated to settle the other cases too.

2.  Starbucks hasn't had the number of suits that Wal-Mart has in this area, but they still ponied up a mucho grande , no whip settlement.  In 2002 Starbucks paid $18 million to resolve overtime claims.  The allegation resulted from misclassification of "managers" who were ultimately found not to be exempt from overtime requirements.  The reason was that the title was not enough.  You have to look at the actual job duties and responsibilities, and in their case they didn't have enough "managerial" duties to justify the classification.

[In fairness to Starbucks, a more recent claim involving tip-sharing between baristas and their supervisors initially resulted in an $87 million verdict, but was recently reversed by a higher court in June 2009.  We'll see if there's any further appeal -- stay tuned.]

The bottom line is that periodic reality checks are a good business practice to keep your company from falling into the "this is the way we've always done it" trap and unintentionally perpetuating and entrenching bad habits.