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Are You Prepared to be Sued by Your Employees?

  • March 2008

    Business owners can't really avoid getting sued, but they can prepare to defend themselves

    Most businesses that I represent treat their employees very well. One client was recently surprised, however, when a former employee brought a lawsuit, claiming that he had not been paid for 100 hours of overtime. The client was even more surprised to learn that because his business had not maintained proper time records, the former employee was likely to win his case.

    People sue their employers every day. Some sue for discrimination, some sue for harassment and some sue for unpaid wages. Wage claims are very common these days, particularly because there are many traps for unwary employers. Some of these traps relate to record-keeping. Although most employers intuitively know that they need to maintain certain employee records, many find themselves uncertain about precisely what records need to be kept and for how long. Because the law imposes record-keeping requirements on the employer (and not on the employee), failure to maintain appropriate records may expose an employer to unexpected liability.

    Under a Federal law called the Fair Labor Standards Act ("FLSA"), an employer must "make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions and practices of employment maintained by him...."

    Hours Worked

    Employers must keep track of all hours worked by employees. Time clocks are not required; any timekeeping method may be used. In calculating hours worked, employers must include all the time during which an employee is necessarily required to be on the employer's premises, on duty, or at a prescribed place. Actual lunch breaks - where an employee is relieved of all job duties for a period of time - do not count as compensable work time. Short rest periods, or coffee breaks, which are common in industry and promote employee efficiency, are included in hours worked.Time spent for training generally does not count in hours worked, so long as the attendance at a training program, lecture or seminar (1) is outside the employee's regular working hours; (2) is completely voluntary; (3) is not directly related to the employee's job; and (4) does not result in any productive work being performed by the employee.

    Attendance is not considered voluntary, however, if it is required by the employer or if the employee is led to believe that his present working conditions or the continuance of his employment would be adversely affected by non-attendance. Also, training is considered to be directly related to an employee's job when its purpose is to train the employee to handle his job more effectively, as distinguished from preparing the employee for advancement to another job.

    Commuting to and from the employer's location generally is not considered hours worked. Travel during the workday in the course of an employee's performance of his job, however, is considered compensable. Similarly, an employee must be compensated for required out of town travel, but only for the time that cuts across the employee's normal work day. Time spent riding on a train or airplane, therefore, would not normally count as hours worked.

    "On call" time may be included in hours worked, depending upon whether or not the employee is required to remain on the employer's premises or so close to the premises that he cannot use the time effectively for his own purposes. The more disruptive the "on call" time is to the employee's life, the more likely it is that the time will be considered hours worked.

    Employee Data

    Every employer must maintain detailed records about each employee's hours, wages, and earnings, and keep these records in a safe and accessible manner at the place of employment or at a central recordkeeping office where such records are customarily maintained. If an employer outsources its payroll functions, most of this information will be

    recorded by the payroll vendor.

    Records Retention

    Employers must also be aware of their obligation to retain employee records. The following records must be kept for at least 3 years: (1) payroll records; (2) collective bargaining agreements; (3) employment contracts; and (4) written memoranda memorializing the terms of oral agreements.

    The following records must be kept for at least 2 years: (1) time sheets; (2) wage rate tables; and (3) records of additions to or deductions from wages paid.

    Notice Posting Requirements

    Every employer with employees subject to the FLSA's minimum wage provisions shall post and keep posted a notice explaining the FLSA, in conspicuous places in every establishment where such employees are employed. An official poster may be obtained from the U.S. Department of Labor at no cost. Conclusion

    The FLSA regulations contain pitfalls for even the most conscientious employer. One way to protect against a lawsuit, or to minimize its impact if you are sued, is to conduct regular employment practices audits. Employers also should make sure that they are familiar with the current recordkeeping requirements of the FLSA and seek appropriate counsel to make sure they are implementing best practices for preventing or mitigating the impact of wage claim, discrimination and harassment suits. Stay Tuned for Part 2... How to handle a harassment complaint.

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    Stuart M. Katz is Chair of the Employment & Labor Group at Cohen and Wolf, P.C. He counsels employers in preventative best practices and represents employers and employees in litigation arising from a variety of workplace disputes. He can be reached at skatz@cohenandwolf.com or (203)368-0211. 

Are You Prepared to be Sued by Your Employees?

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