Fair Warning for Employers: Ignore Wage and Hour Law at Your Peril

Synopsis: In December, both Wal-Mart and FedEx were hit by multimillion dollar judgments for California wage and hour violations. Such huge awards send a clear message to employers: mind those wage and hour laws or suffer the consequences! Here are some thoughts to help you analyze your company's situation.

Forget those sexy sexual harassment headlines.
The recent big California employment cases concern wage and hour regulation. The learning for our clients: pay attention to even the most seemingly minor details of the law, or risk huge liabilities for your failure to do so.

Recent California cases:
Two cases in particular are commanding the attention of companies that have California employees. In the first, FedEx Ground, a sister company of FedEx Express, classified its drivers as independent contractors, requiring them to buy their trucks, have them painted to the company’s specs, pay for maintenance, fuel and insurance, and buy their own brown uniforms. Notwithstanding these formal indicia of “independence,” the drivers were part of the company’s scanner and record keeping system, were specifically directed each and every day by their “managers” at the company, and had no real “profits” or “losses.” Perhaps most damning, FedEx Ground’s sister company, FedEx Express, classified its drivers as employees, though their functions were virtually identical to those of FedEx Ground’s putative “independent contractors!” Having previously certified a class of some 200 drivers, the Los Angeles judge, in December, awarded those drivers $5.3 million in damages and $12.3 million in attorney’s fees. The California results will undoubtedly impact the 32 similar cases pending against FedEx in 25 other states.

FedEx got off light, however, compared to Wal-Mart’s December experience. An Alameda County jury found that the retail giant – with knowledge of California law and with the intention to flout it – systematically deprived its California workers of the 30 minute meal breaks required for nonexempt workers putting in shifts of five hours or more. The jury awarded $57 million in compensatory damages and $115 million in punitive damages.

Risks of misclassification:
Certainly most California employers are at least vaguely aware of the risks of getting the “independent contractor/employee” analysis wrong. Such risks go well beyond exposure to the employees (or a class of them). Misclassification – particularly systematic misclassification – can result in substantial tax problems (failure to properly withhold and deposit to the state and the feds). Far fewer California employers (particularly smaller ones) are sufficiently focused on the risks of ignoring such “minor” or “picayune” requirements as meal breaks (or, for that matter, shift breaks, proper classification between exempt and non-exempt employees, etc.). Such requirements, however, do not strike judges as picayune.

Indeed, the United States Supreme Court, in November, held, in a case that came up from the Ninth Circuit, that workers must be paid under the federal Fair Labor Standards Act for the time they spend walking between the production floor and the location where they “don” and “doff” their protective gear. (IBP, Inc. v. Alvarez, October Term 2005, No. 03-1238.) May not sound like much, but like those Wal-Mart meal breaks, given enough workers, over a long enough time, the difference between paying or not paying is quite sufficient to attract the attention of the U.S. Supreme Court or to get a large employer hit with a seven figure judgment.

For our employer clients, forewarned will, hopefully, be forearmed.
The lesson is clear: an employer can’t pay close enough attention to proper classification of workers, and to the statutes and regulations governing their pay and hours.