Wrong classified employees as exempt? Don’t take shortcuts when fixing your error

Employers must follow strict rules if they want to rectify misclassification of employees and make up their unpaid overtime. Don’t expect to just cut them a check and put a note on the paystub.

Instead, be sure to get the Department of Labor’s (DOL) approval of both the amount of pay due and the language of your waiver. If you don’t get this right, employees who go to court will be entitled to double their unpaid wages—plus attorneys’ fees. That can dramatically increase how much your mistake will cost you.

Recent case: Jennifer was one of a group of employees who worked for ActionLink as brand advocates for LG appliances. They visited 20 stores per week to provide information on the appliances and generally try to persuade customers and salespeople that the they were a good value.

ActionLink classified the employees as exempt and expected them to work 60 or more hours per week without additional pay over their salaries, about $42,000 per year.

One of the advocates asked the DOL to determine whether the employees were properly classified. It concluded they were hourly employees who should have been nonexempt.

ActionLink worked with the DOL to determine how much the employees were owed—without the double-pay penalty the law allows.

The company cut checks and distributed them. Above the checks it included a note that said, “By cashing this check, the employee to whom is made is agreeing that he or she has received full payment” of wages earned, including minimum wage and overtime, up to the date of the check. Many cashed the checks.

Later, the employees sued, alleging they hadn’t realized they might be entitled to double damages plus attorneys’ fees. They claimed the disclaimer was not valid because it hadn’t been approved by the DOL investigator, since he was on vacation when the checks were printed and sent out. He apparently later did approve the language.

The court refused to toss out the claims. It reasoned that because the DOL hadn’t pre-approved the check amounts or the disclaimer, and because the language was different than what was on the official DOL disclaimer, the employees had a right to sue for attorneys’ fees and double damages. (Beauford, et al., v. ActionLink, et al., No. 13-3265, 8th Cir., 2015)

How to settle wage claims following reclassification

Here’s how to properly pay employees who were incorrectly classified:

• Work through your attorneys to determine which employees were misclassified.
• Prepare a breakdown of the wages you believe were owed and provide a copy to your attorneys for DOL review. Your attorneys can provide the waiver language that will satisfy the DOL and will determine the scope of DOL involvement.