Training to Short-Circuit Wage Disputes

By Garry Kranz

Jul. 22, 2008

Wal-Mart Stores Inc. is the latest high-profile employer to learn a rueful lesson: America’s frontline managers need a stronger grasp on the basics of wage and hour laws. In July, the Bentonville, Arkansas-based retailer was ordered to pay $6.5 million in compensatory damages to the 56,000 employees in Minnesota who won a class-action lawsuit alleging Wal-Mart failed to pay them for working overtime.

The company could end up paying more than $2 billion after a jury convenes in October to consider civil and punitive damages. Among the violations: Employees allege they were directed by Wal-Mart superiors to work off the clock and frequently were denied breaks.

Wal-Mart has been punished for allegations of violating federal wage laws before. A Pennsylvania jury in 2006 awarded $78 million to Wal-Mart workers who said they worked off the clock and through breaks. That followed a $172 million verdict against Wal-Mart in California in 2005.

Wal-Mart is said to be appealing the judgments. The company declined to comment on the matter when contacted by Workforce Management.

Meanwhile, the retailer reportedly is embroiled in about 70 similar employee wage disputes nationwide.

Wal-Mart is hardly the lone major U.S. employer to face a large settlement. Other noteworthy payouts: UBS Financial Services Inc. is compensating retail brokers for unpaid overtime in a settlement potentially worth $89 million. United Parcel Service Inc. has agreed to pay $87 million to settle a class-action lawsuit brought by 20,000 of its drivers. IBM in 2006 settled similar litigation to the tune of $65 million, but has at least two other wage suits making their way through the courts.

Wage and hour lawsuits are widespread for a simple reason: Seven in 10 U.S. employers are failing to comply with wage and hour regulations, according to a recent study by the U.S. Department of Labor.

Some experts say that estimate is too conservative, suggesting the actual number is between 95 percent and 100 percent.

“You could go into virtually any company and probably find a technical violation of wage and hour law,” says Shanti Atkins, the president of ELT Inc., a San Francisco company that provides online legal and compliance training to corporations.

Failing to equip managers with at least rudimentary knowledge of labor laws comes with a steep cost. Companies found in violation of the federal Fair Labor Standards Act—the law that governs job classification, overtime pay, and record keeping—pay an average of $23.5 million to resolve claims of unpaid overtime and other FLSA-related allegations, according to a 2007 study by New York University School of Law professor Samuel Estreicher.

Experts say companies can sidestep some of the liability by making sure supervisors are conversant with basic dos and don’ts, such as instructing employees not to work through break times and not to volunteer their time after hours and requiring that they receive approval in advance for any overtime they put in.

“A manager should be trained to know what constitutes work and what doesn’t. It sounds like an easy concept, but often it’s not,” says Tammy McCutchen, a Washington attorney with Littler Mendelson and former administrator of the U.S. Labor Department’s wage and hour division.

Disputes about employee wages have been on the rise since the start of the decade, but have skyrocketed in the past few years. The number of wage complaints filed under the FLSA soared from 4,207 in 2006 to more than 7,300 in 2007.

Unlike allegations of discrimination or harassment, in which accusers must prove they were harmed, the burden of proof in wage disputes rests upon the employer. That means companies have to disprove claims that they failed to compensate someone for time worked.

An understanding of work laws isn’t usually considered a training issue—though perhaps it ought to be, given the spike in class-action wage and hour suits. Frontline managers need to understand the “definition of work” for each employee they supervise, as well as explain rules that prohibit employees from volunteering their time or pulling overtime without prior approval, Atkins says.

“Training managers on this can eliminate some very basic errors that people make completely inadvertently, which frankly are fueling most of the lawsuits in this area,” Atkins says.

The managers often commit some of the biggest blunders, such as suggesting that employees work overtime but not record it. They are also the ones who are likely to receive complaints from employees who think something is wrong with their pay or hours, so training is crucial in helping them defuse controversies, Atkins says.

Wage laws are painstaking, forcing companies to know precisely what constitutes typical workday activities. McCutchen predicts that future controversies will erupt because of the profusion of company-provided electronic devices that employees use to carry out their duties, especially with regard to nonexempt workers.

“If you’re giving them a BlackBerry or cell phone, and they use it at home to check their work-related e-mail, that’s [classified as] work time,” putting companies at risk if they fail to have written policies in place governing their use outside the workplace, McCutchen says.

Having accurate job descriptions and written policies also helps, but many organizations are using performance reviews to make managers accountable for ensuring that state and federal employment laws are rigidly followed. Some are even instituting policies that allow managers to be terminated if they purposefully or intentionally take some action that violates the law,” McCutchen says.

It’s never too late to attack the problem, even in the midst of litigation. Implementing wage and hour training initiatives during the course of a lawsuit can help companies reduce financial penalties, Atkins says.

Garry Kranz is a Workforce contributing editor.

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