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December 2015

Attorney’s Fees under the Fair Labor Standards Act: An Ever-Growing Tail

Whether your company has recently become subject to the Fair Labor Standards Act ("FLSA") or you are a Fortune 500 operation, familiarity with the often overlooked attorney’s fee provisions of the FLSA can provide valuable assistance in assessing your company's exposure to wage and hour liability. 
Congress created the FLSA in response to the labor movement of the early 20th century as an effort to protect employees' rights.  In that vein, courts across the country have held that an employee who “prevails” in an FLSA action shall receive his or her "full wages plus the penalty without incurring any expense for legal fees or costs." Silva v. Miller, 307 Fed. Apps. 349, 351 (11th Cir. 2009.)  In other words, if it costs an employee $170,000 in attorney's fees to litigate and prevail in her $6,000 FLSA action, you, as the employer, may suddenly be looking at a hefty amount of liability. See, Cain v. Almeco USA, Inc., 2014 U.S. Dist. LEXIS 70900 (N.D. Ga. May 23, 2014). 
Businesses tend to see two types of overtime claims under the FLSA:  "off-the-clock" and "misclassification."  Off-the-lock litigation arises from an employee's claim of improper compensation for work performed.  Simply enough, the employee claims that he or she worked a certain number of hours without receiving proper overtime compensation.  On the other hand, misclassification disputes stem from employer classifications of employees as exempt from overtime pay.  These disputes surround the employee’s job duties as applied to specific exemptions allowed-for under the FLSA.  The issue here is often an employer and an employee may have two very different ideas of what the employee does.
From an employer's perspective, off-the-clock liability is easily calculable.  Assuming you, as the employer, keep complete and accurate time records, determining monetary exposure is straight forward.  With the time records in hand, an employer can assess not only the exposure with regard to the employee’s wages but also can limit an employee’s right to recover his or her attorney’s fees to a great degree. 
Accurate records of an employee's hours and pay are vital for the opportunity to prevent the accrual of attorney’s fees.  Electronic clock-in and clock-out systems have made this easier and more cost effective than ever.  To receive attorney's fees, an employee must still be a "prevailing party."  This means a court or jury must determine that the employer violated the FLSA with respect to the plaintiff employee.  However, an employer who tenders the entire amount of overtime damages can bar a plaintiff's claim for FLSA attorney's fees. Dionne v. Floormasters Enters., 667 F.3d 1199, 1200 (11th Cir. 2012).
In Dionne, the plaintiff filed suit under the FLSA, seeking to recover overtime compensation and attorneys’ fees.  Thanks to accurate time records, Floormasters calculated and offered the entire amount of the plaintiff’s alleged overtime claim, approximately $3,000.  The plaintiff accepted the offer, but sought to collect attorney’s fees by claiming that he had “prevailed” in the litigation.  The Eleventh Circuit denied his claim for fees, because the employee accepted payment in full for his overtime claims, which mooted his cause of action.
There are two keys to Dionne.  Floormasters denied liability, and it was able to demonstrate payment of the entire amount of wages claimed by the plaintiff.  With good time keeping, an employer can accurately determine potential overtime owed, assess financially the pros and cons of mounting a fight in litigation, and obtain, as in Dionne, an employee’s admission and acceptance of entire amount of overtime allegedly owed.  With the agreed-upon amount accepted by the employee, the employer may then move to dismiss the claim as moot, without payment of fees.
Misclassification cases are a bit trickier.  In a misclassification case, litigation typically surrounds an employee’s job duties, which can often come down to a question of fact for a jury.  The problem there is that litigation is expensive, and it can often cost much more to learn whether an employee should be exempt under the FLSA than to pay wages he or she claims to be owed.  This is what occurred in Cain v. Almeco USA, Inc. See, supra.
In Cain, the dispute surrounded whether an employee, who held three different positions and often worked over 40 hours a week, was exempt from overtime because of the positions she held.  While the court denied the employee’s motion for summary judgment, it acknowledged the “gulf between the parties’ descriptions of the [employee’s] roles with the [employer].”  This uncertainty led to a trial and a jury verdict in the employee’s favor for approximately $6,000 in unpaid overtime wages.  For many employers, the $6,000 award may be worth the price to learn what may qualify as an exempt employee in its field.  However, the $170,000 in attorney’s fees to litigate and try the case may not have been.
In assessing the attorney’s fees with respect to the amount of overtime owed, the court stated:
[I]t is true that the [attorney’s fees are] more than ten times that of [the employee’s] actual and statutory damages. But that is not remarkable in an individual FLSA case seeking overtime. Accordingly, I decline to reduce the lodestar amount for limited success on the merits of the claim. Therefore, the Plaintiff's Motion for Attorney's Fees is GRANTED in the amount of $173,300.50.
Cain, supra. For many smaller companies, an attorney’s fees award like this could be crippling.
Indeed, Cain is the perfect illustration of how nuanced a misclassification case can be and how attorney’s fees can grow to be the tail that wags the dog.  When questions of employee classification arise, employers should seek legal counsel before deciding upon any broad exemption classifications for employees.  For larger employees, who may have hundreds of employees subject to the same exemption, the litigation risk could be worth the certainty of knowing you are no longer exposed to liability for a large group of employees.  But in any event, clear definitions of employee job duties, coupled with preemptive analysis of those duties by a legal professional, is an employer’s best chance at avoiding FLSA liability and the hefty amount of attorney’s fees that may tag along. 

Employment Law

Employment Law