“Regular rate” mistakes are low-hanging fruit. Is yours ripe for picking?
In the past week, a class action lawsuit was filed against Anheuser-Busch, alleging various violations of California’s wage and hour laws.
You may ask, “What’s newsworthy about that? Aren’t hundreds of such lawsuits filed each week, and don’t many of them stretch the truth beyond its breaking point?”
Yes. But the allegations of this one provide a teaching moment about low-hanging fruit.
The plaintiffs in the Anheuser-Busch lawsuit allege that the company failed to properly calculate the employees’ “regular rate” and pay overtime, meal premiums, and sick pay based on the regular rate.
Without making any assumptions about the company’s practices at this early stage of the litigation, you might be surprised to know how many employers do not properly calculate their employees’ regular rate of pay. Based on my anecdotal experience over the course of the past 45 years, it is a lot and includes employers large and small.
The nature of class actions
Considering the tidal wave of class action lawsuits filed in the past few years, you may be surprised to learn that they are an exception to the general rule that litigation is supposed to be conducted by and on behalf of the individuals named as parties.
Because of their exceptional nature, class actions must satisfy multiple procedural requirements, ranging from the number of individuals involved to the qualifications of the individuals and attorneys seeking to represent the class. The most important of these requirements is the existence of evidence that will resolve an issue central to the validity of each class member’s claim. To paraphrase the late, great Justice Antonin Scalia, the hallmark of a class action is the existence of evidence that will allow a judge or jury to resolve the claims of the class with a single stroke.
Whether spoken or not, the mantra of many who defend class action lawsuits is “Different, Different, Different.” If the claims of each class member require different evidence, then a trial is likely to break down into hundreds or thousands of mini-trials. And that is the antithesis of a class action. But if the opposite is true, the defendant could be betting the farm by going to trial.
Low-hanging fruit for plaintiffs (and their lawyers)
The regular rate of pay is not necessarily the hourly, straight time rate regularly paid to an employee. It is a rate that includes all remuneration (subject to certain exceptions) paid to the employee in a given workweek. It can even change from week to week.
Assume that an employee earns $20 an hour, works a 45-hour week, and earns a $100 production incentive during that week. The employee’s total non-overtime wages for the week without the incentive comes to $900 (45 hours x $20). But the incentive also has to be included – in other words, the non-overtime wages for the week should be $900 + $100, or $1,000. Thus, the employee’s regular rate of pay for that week is $22.22 per hour, or $1,000 divided by 45 hours.
One-half of that regular rate ($11.11) is the amount to be used in calculating the overtime rate. The overtime premium is multiplied by the number of overtime hours worked. (In this example, five hours, or $55.55.) Thus, the total wages due are $1,055.55, including overtime premiums ($1,000 in straight time wages plus $55.55 in overtime premiums).
Claims involving an employer’s failure to pay overtime, or other types of compensation, at the employee’s regular rate of pay typically will not break down into hundreds or thousands of mini-trials. To the contrary, they usually are capable of being resolved with common evidence applicable to all class members and Justice Scalia’s proverbial single stroke of a pen.
The consequences of low-hanging fruit
Failing to include all required remuneration in the calculation of an employee’s regular rate of pay for payment of overtime violates the federal Fair Labor Standards Act. Depending on the facts, liability can extend back three years and could be doubled by liquidated damages. Depending on the number of employees, the total number of overtime hours worked, and the total extra compensation not included in the calculation, the exposure for unpaid overtime wages can be staggering.
In addition, some states require that certain other payments be made at the regular rate of pay. For example, in California meal premiums and sick pay hours must be paid at that rate. Once again, potential exposure can be staggering, especially in California with the added potential for recovery of penalties under the state’s Private Attorneys General Act.
Do you have low-hanging fruit?
Are you one of the employers whose payroll department or payroll processor is not properly calculating the regular rate? If so, you may not be paying all overtime premiums due, and that could be obvious to your employees and, more importantly, to any wage and hour attorney who might look at their pay slips.
In fact, such a failure is likely to fall off the tree and hit the lawyer in the head. In my example above, if the employee’s pay slip shows the overtime hours being paid at one and a half times the employee’s $20-per-hour straight time rate, the lawyer would not need to be a genius to realize that the $100 weekly production incentive has not been included in the calculation.
Have you looked at your pay slips lately? Do you have low hanging fruit? If so, and channeling Clint Eastwood in Dirty Harry, you need to ask yourself one question - “Do you feel lucky?”
