• LinkedIn
  • YouTube
  • Twitter
  • Facebook
  • Google+

Is there an FLSA violation hiding in your company handbook?

by on
in Compensation and Benefits,Employment Law,Firing,FMLA Guidelines,Human Resources,Leaders & Managers,Performance Reviews

Why bother to wordsmith and labor over every word in your employment policies? Because sometimes an employer’s own pen can create liability. That was the case recently for an Illinois employer that will now go on trial for allegedly violating federal and state wage laws.

Exhibit A on the list of evidence against the company: its employment policy handbook. The problem: It appeared to establish policies that can be used against the employer in court.

Overtime and illegal withholding

International Merchant Services (IMS) is an Illinois-based electronic bank-card processor. Five employees, who had worked for IMS between three and six years, filed the suit in the U.S. District Court, Northern Illinois. (Ergo v. Int’l Merchant Servs. Inc., No. 04-06789, ND IL, 2007)

The former employees claimed IMS violated overtime-compensation laws by failing to pay them time-and-a-half for all hours worked over 40 hours per week and withholding money when they were disciplined. They also claimed the company retaliated against them after they complained. The retaliation allegedly took the form of constructive discharge, discrimination or termination.

The five former employees sued under the federal Fair Labor Standards Act (FLSA), Illinois Minimum Wage Law and Illinois Wage Payment and Collections Act.

From hourly to exempt

Initially the plaintiffs all worked in the same department and were classified as hourly, nonexempt employees. Even though their responsibilities did not change, IMS eventually reclassified them as exempt.

Additionally, the company implemented a “44-hour cap” that prevented workers from being paid for more than 44 hours per week. Company executives explained they implemented the policy because employees were “milking the company for overtime.”

Thus, the employees alleged that they often were expected to work without pay. When they refused to work Saturdays without compensation, they claim IMS retaliated by denying them lunch breaks and raises, called them a “cancer” and falsely accused them of accessing pornography.

Illegal deductions

Exempt employees are supposed to work as long as necessary to get their jobs done—without extra pay. But the trade-off is that exempt employees must be paid the same salary even if they miss work for part of a day. Their employers aren’t allowed to deduct from their earnings except in very limited circumstances. So if an exempt employee leaves early or comes in late, he or she gets the same paycheck.

Employers that make deductions from exempt salaries and don’t follow strict rules may find that the employees have reverted to hourly status. Under the FLSA, employees can’t be considered exempt if the employer makes deductions for violating nonsafety rules or makes partial pay deductions. What’s worse, making an incorrect deduction may make hourly employees out of all formerly exempt employees in the same category.

By the book

That’s where the company’s handbook comes in. Sending the case to a jury for trial, Judge Harry D. Leinenweber found that IMS “maintained a practice of subjecting plaintiffs and other nominally exempt employees to improper deductions for discipline or partial-day absences.” Pointing to the employer’s handbook, the judge noted it contained a “progressive discipline” policy that included suspensions for dress-code violations, personal telephone calls and lateness. While the company asserted the deductions were used only in “unusual circumstance(s),” the court highlighted at least a dozen situations where the company docked the pay of nominally exempt employees.

Leinenweber recognized that the employees did not have to show they actually experienced the deductions, but rather that a policy existed that probably resulted in deductions. As a result, the court granted summary judgment in favor of the employees—they will be able to recover the money IMS deducted and unpaid overtime. The trial jury will decide other aspects of the case, as well as the amount of any damages.

And retaliation, too

As for all the retaliation claims, the court gave only one green light—where an employee was denied an office space after filing a complaint about the wage policy. The court reasoned, “Although the taking away of an office would seem to be on the minor end of the scale of possible retaliatory actions, it is difficult to conclude that there is no circumstance under which a reasonable person would find that action to be troublesome enough to dissuade him or her from complaining of improper pay practices.”

Like what you've read? ...Republish it and share great business tips!

Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...

We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.

The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.

" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/3702/is-there-an-flsa-violation-hiding-in-your-company-handbook "

Leave a Comment