March 18, 2010Client Alert

The Wave of Collective Action Wage Claims Crashes Into Wisconsin

Within the last decade, “class action” plaintiffs’ lawyers have discovered the lucrative nature of Fair Labor Standards Act (“FLSA”) claims. Known under the FLSA as “collective actions,”[1] these claims have a minimum two year period of liability[2] and provide for the recovery of back wages, double damages, attorney fees, interest, costs, and civil money penalties.[3] Spurred by the difficulty in defending against such claims due to a frequent absence of accurate time records, current and former employees have been filing FLSA collective actions at a blistering pace across the country.

Several of these collective actions have resulted in staggering judgments and settlements. For example, Allstate Insurance paid $120 million to settle overtime claims of insurance claims adjusters, IBM paid $65 million to settle nationwide overtime claims brought by information technology employees, and Starbucks paid $18 million to settle claims of “store managers” improperly classified as exempt from overtime.

In what is likely the biggest action to date, two collective actions were filed in December 2009 against AT&T seeking one billion dollars in back wages for 5,000 current and former employees. Given that these claims are often not covered by insurance, employers defending such claims face potentially catastrophic consequences.

Interestingly, however, until very recently Wisconsin Courts saw few such collective actions being filed, despite numerous actions being prosecuted in Minnesota and Illinois. That changed dramatically in 2009.

A review of Court filings in the Federal Eastern and Western Districts of Wisconsin reveals
that 20 such FLSA collective actions were filed against employers in 2009. Additionally, there were 13 individual wage complaints filed. By contrast, in 2008 there were only seven FLSA collective actions filed in the Eastern and Western Districts of Wisconsin. Given the high unemployment rate, a further increase in the filing of FLSA collective actions in Wisconsin is expected.

An examination of the nature of the claims asserted in the 2009 Wisconsin FLSA collective actions reveals they generally fall into one of four categories:

  1. Improper classification of exempt employees. Employees in a variety of positions, such as service technicians, call center employees, administrative assistants, and drivers claimed they were improperly classified as salaried exempt and denied overtime.
  2. Claims for “off the clock work”. Employees filed actions asserting they were entitled to, among other things, compensation for the time it took them to boot up and log onto their computers, or check emails on their BlackBerrys.
  3. Claims for the “donning and doffing” of uniforms and personal protective equipment. Several actions were filed against foundries and meat processors seeking pay for the time spent putting on (“donning”) or taking off (“doffing”) company uniforms, shoes, hard hats, safety glasses, and ear plugs before punching in or after punching out.
  4. Claims for work during unpaid lunch breaks. Employees filed actions claiming they either worked during their unpaid lunch breaks or their lunch breaks were frequently interrupted by work demands, entitling them to compensation for their entire lunch break.

Companies should be cognizant of the potential for these types of claims. Companies can potentially avoid large exposures from FLSA collective actions by conducting an internal wage and hour audit to determine their level of FLSA compliance. The audit should analyze whether those employees currently classified as salaried exempt are properly classified, and whether the company is actually paying for all hours worked (including “off the clock” work).

[1] There is a three year period of liability for “willful” violations of the FLSA. 29U.S.C. § 255(a).

[2] One can think of a “collective action” like a “class action.” One significant difference is that under the FLSA an individual must “opt in” to the action in writing, unlike a class action where a putative class member is presumed to be part of the class unless he or she affirmatively “opts out.” 29 U.S.C. §216(b).

[3] 29 U.S.C. §216.

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