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Exempt status in question? ‘Good-Faith’ reply saves the day

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in Human Resources

If an employee comes forward to protest that you owe him overtime pay because he should truly be a nonexempt worker, it pays to act fast and be able to show good cause why you classified him as exempt in the first place.

Your quick response may determine whether you’ll owe just the back overtime pay or double that amount. The Fair Labor Standards Act (FLSA) allows employees to collect double (or “liquidated”) damages unless you can show your mistake was made in good faith and you honestly intended to classify the employee correctly. Plus, you may be on the hook for attorneys’ fees.

To head off such complaints, host an annual classification review. Have a team compare all employees’ job descriptions (and actual duties) against the FLSA exemption regulations, which were revised in 2004. (For more details, go to www.dol.gov/fairpay.) Some states set their own rules. Get a legal opinion if you’re stumped about an employee’s status.

If any positions should be switched to hourly, make the change as soon as possible and start paying overtime. Then, do your best to calculate what you owe for past unpaid overtime.

Bottom line: If an employee files an overtime suit, your annual classification audit would likely be enough proof of your good-faith efforts to ward off double damages.

Recent case: A group of technical writers sued Indiana Michigan Power, alleging it had wrongly classified them as exempt. The court agreed. It then had to decide whether the utility made the mistake in good faith. At stake were double damages and attorneys’ fees.

The three strikes against the employer: (1) It couldn’t explain why it made the writers exempt. (2) The decision-makers weren’t familiar with the FLSA overtime rules. (3) The employer didn’t seek outside help when it received the original complaint, but waited until it was sued.

All this indicated a lack of good faith. As a result, the company’s liability doubled from $215,000 to $430,000. Plus, the court ordered it to pay another $111,000 to the attorneys. (Renfro, et al., v. Indiana Michigan Power Co., No. 1:99-CV-877, WD MI, 2007)  

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