The Legal Zone (S1:E3): Steps for Employers to Take to Mitigate Risk

Transcript

Introduction

Good morning, everybody. Welcome to The Legal Zone with Regina Campbell. We're very proud to say that this is our Episode 1, I'm sorry, Season 1, Episode 3 podcast. Hopefully we're getting a little bit better, and we hope to get all the kinks out shortly. We are going to be moving onto Apple Podcasts soon, so hopefully we'll see you there as well, and you'll become a subscriber. If not, you can always view any of our past podcasts on YouTube, and we also encourage you to become a subscriber of our YouTube channel.

Today we're going to talk a little bit about steps for employers to mitigate risks. This is a really important topic, and many business owners do not realize the amount of risk they actually run by the way they're doing business. Most of us are small businesses within the United States, and particularly in Florida that is the case, and we have a tendency to run informally. "Johnny, I want you to work on a salary, $1,000 a week. This is what you're going to do for me." Or, "Suzy, we're going to work nine to five. I want you to clock in and clock out," or fill in a timesheet, and we don't give it much thought.

Overtime and individual liability under the FLSA

Part of the problem is that there are no other policies in place, for instance, to limit the employee's ability to work overtime, or to require the employee to seek written approval before working overtime. Unfortunately, it's a little bit more of an issue with remote work, because it's harder for employers to watch their employees without putting additional procedures in place to keep those employees accountable. We'll talk a little bit about that in a moment.

But most of the time, business owners do not realize that they are running a risk of overtime claims or retaliatory discharge claims, particularly under the Fair Labor Standards Act. "So, Regina, what is that? I don't understand." Most of the time, employers are coming to me when they've been threatened with a lawsuit, with an administrative proceeding, or with an actual FLSA lawsuit. So this is when I explain it to them, and I almost watch their heads spin: "I don't understand. How can that be?" I'll explain to you in a moment what these lawsuits are like, and how we try to mitigate them by putting certain policies and procedures in place ahead of the lawsuits.

They're also surprised to see that they're being sued personally. "Regina, how can that be? I'm doing this in a business. Don't I have protection under the corporate veil?" And I explain to them, "Well, unfortunately, no." With these types of lawsuits, the statute permits the employee to sue the actual individual employer for wages that might not have been paid. "Well, how can this be?" Well, employment wages are highly regarded and protected in this country. And a lot of times there have been some unscrupulous employers and business owners who try to get around paying employees. They might run up a tab, so to speak, with the employees, misuse the employment laws within the company, and then shut down the company and think they're going to get away from the liability.

So the statute permits the employee to sue a manager, or someone directly in charge of their hours or the finances of the company. In small companies, that's usually the manager or the owner. They can be sued for these employees' wages. So even if the company goes out of business, the individual is still liable for any judgment that's received for these types of wages. That's usually one of the biggest shockers business owners get, and I try to explain to them the policies behind that, and why it occurs in this area of law.

What the parties agreed doesn't matter

They tell me, "Regina, we agreed. We agreed to $1,000 a week. Johnny said it was okay. He's been working like that for five years. I don't understand how he can turn around and try to sue me for overtime wages when we had an agreement." Well, under the FLSA, it's irrelevant what the parties agreed to. If the employee should have been classified as non-exempt, but they're classified as exempt, which is usually a salaried employee, they're misclassified, and they should have been receiving overtime for any hours worked over 40. It's irrelevant what the agreement of the parties is. What's important is what the law says.

Why timekeeping records matter

And then the employer says to me, "Well, okay, I don't have a problem. Johnny didn't really work that much overtime." Then we talk a little bit about lunch breaks, and whether he was given relief from duty during lunch breaks, or whether he worked during lunch breaks, and we try to calculate the potential hours Johnny could have worked overtime. And even then, often it's, "Regina, it's only four or five hours, maybe every couple of weeks. It's really not that much. Why is Johnny requesting 20 hours a week of overtime for the last three years?" Well, Johnny's probably capitalizing on the fact that there are no timekeeping records. There's no indication of when Johnny actually worked, which is ultimately the employer's responsibility.

So you say, "Well, Regina, I wouldn't keep timekeeping records, because he was exempt. He was salaried. I didn't need them." The problem is that when you misclassify somebody, the onus is still on the business owner to have those timekeeping records, so that when you go before a court, an administrative proceeding or a judge to figure out the money owed to Johnny, you have the ability to do so. If not, you're going to have to prove that what Johnny is saying is not true, which is a little bit harder than you can imagine, because it turns into a he said, she said.

And you'll be surprised how often employees have left, or are no longer willing to testify to what actually occurred. Some of those employees are also brought into the lawsuit, in which case they become plaintiffs, and of course they're not going to be cooperative and testify to what occurred or did not occur. So you do not want to rely on gathering evidence later on to prove these things. It's important to have timekeeping records.

Exempt versus non-exempt

"Well, Regina, if the person is salaried, why would I keep timekeeping records?" people say. And I say, well, the first thing you need to do is make sure they're actually properly exempt. You may not be sure, and it's actually a very complex analysis, depending on the type of jobs people have. Most of the time, exempt employees might be high-level professionals or computer programmers. There's a particular area for art and creativity. But you have to be doing a certain amount of duties within the scope of each one of these exemptions in order to qualify for it. Most of the time, people have mixed bags, mixed duties: some that fall within the exemption, some that do not.

Now, if you have some duties that are ancillary to the employee's specific job and fall outside the exemption, a lot of times that may not actually cut against the exemption. It just has to be analyzed, to make sure those are ancillary, minor duties, and that primarily the person is engaged in exempt duties. So it's an analysis. But I always tell my clients that, in the event of any doubt as to how to pay an employee, the best thing to do is pay them hourly. It's usually the safest thing, and you don't have to worry about exemptions. There are exceptions: for instance, teachers and government workers have other types of exemptions, depending on the type of work they do. And of course, lawyers. We are exempt. We are one of the few where the analysis is not as hard, if you're doing purely legal work in a legal office as a lawyer.

But these are things people often don't understand, and they commingle them: "Well, I'm giving them a salary. That's what we agreed to." Well, in most cases that's insufficient, and most of the time it's going to attract a lawsuit.

The cost of an FLSA lawsuit

That's usually when I find these lawsuits come about: when someone is a mixed employee, or not properly classified, and the employee realizes, "Well, they're not going to have timekeeping records, and I've got them. And worst case, I can entrench them in litigation." It's going to be rather expensive as they try to prove this. And most of the time the employee is not paying any fees. It's usually on a contingency that another law firm takes these types of cases, and the employee's attorney will litigate the case.

And these types of cases are a little strange. If the employee is owed any money at all, even if it's by accident, with no malice and no intent to shortchange the employee, the attorney is entitled to all the attorney fees for bringing the case, which can often be $10,000, $20,000, $30,000, $40,000, $50,000, $60,000, $70,000, or even more for the employee's attorney. And that does not even include what you've spent on your own attorney to defend the case. So these are a different animal, so to speak, in the way you treat them in litigation.

Be proactive: overtime policies and audits

My solution, one of my tips, would be to be proactive and deal with it ahead of time as best you can. There are certain things we can do in employment agreements to mitigate this potential risk. But more importantly, timekeeping records, a properly documented employee file, and specific policies in place, so that you can point to them, are very important. For instance, an overtime policy: in order to work overtime, you must seek a particular person's permission, and you make sure it's a high-level person's permission, in writing, to work overtime in any given week, so that it's been authorized. Otherwise, the onus is on the employee if they did not seek that permission beforehand.

You might also want to put in policies that the employee has, let's say, 10 days from the time they receive their paycheck to note any discrepancies on the timesheet, if there's anything wrong. These are things that will be very helpful. Of course, always have the employee sign off on everything, and periodically do audits of your payrolls to make sure everyone's properly classified and being properly paid.

That includes deductions. Let's not forget deductions with exempt employees. For instance, how paid time off is handled with exempt employees can get you in trouble. For the most part, exempt employees can only be given full days off, eight-hour intervals, so to speak, because they're normally salaried. So this is a very, very complex area of law, and it's very important to stay on top of it if you have any questions. Paying employees hourly is always the best way. But how you handle reimbursements, or what happens if you advance a loan to an employee: these things can sometimes get employers into trouble. So it's something to keep a very close eye on.

COVID-19 policies and vaccines

Another very hot topic right now is COVID. Can you require employees to get vaccinated? The EEOC says yes, provided you have certain exceptions for legitimate medical reasons why they cannot take the vaccine, or for legitimate religious reasons. You have some ability as an employer to question whether they're using the exemption properly, but you want to be careful with any kind of medical questions, because at some point an employer can step over the boundaries of privacy, and they can get themselves into trouble.

There are also COVID policies in the office. If you're not requiring your employees to be vaccinated, what are the policies for using masks, for using certain equipment, for cleaning up after yourself, for maintaining distance? These are the types of policies that should be in place right now. It's something that's very important and far-reaching for the company, and it implicates all the employees and their health.

Employee handbooks and applying policies equally

Another example of a very important policy: many business owners have employee handbooks that contain a litany of policies, from anti-harassment policies and who to report to, all the way down to what your uniform should look like, and tardies. If you're tardy, how are you supposed to report it every day? What's considered tardy? There's documentation of disciplinary action in the folder, and a tiered disciplinary process in the company so that people can follow it.

And the most important thing is that, regardless of what policy you put in place, it must be equally applied to everybody. Now, of course, some policies won't apply to everyone. An executive may not wear a uniform, so that may not apply to the executive. But policies that can apply across the board need to be implemented equally for everybody. You have to be very careful not to make it look like you're picking and choosing when to implement or enforce a policy, as that can start to look like discrimination against that particular employee, for whatever reason. That's one way you may potentially catch a lawsuit.

Retaliatory discharge

Another thing we talked about early on was retaliatory discharge claims. They often come right after an employee leaves, or feels pushed out, after a workman's comp claim. In other words, they feel like they're being penalized for putting in a claim for workman's comp, and the allegation is that the employer got rid of them because they used workman's comp. Of course, using workman's compensation is a protected activity, so that can be considered retaliatory discharge under the workman's comp act.

But a lot of times, with overtime, when you see an employee starting to behave a certain way, this is also why it's important to have policies that are evenly applied and implemented. When someone misses work and doesn't call in, or someone doesn't come back from the lunch hour in time, it's important to document it. Often, employees who are going to sue you under the FLSA, or anything of that nature involving wages, have a tendency to act out right before. And they know you don't have policies in place, and you haven't documented their record to show that 10 times last month they were late. It's all just verbal discussions or reprimands.

So they're going to act out, potentially. They're going to leave, and they're going to say they were fired because they complained about their overtime: they never complained for five years, and the first time they ever complained, you went out and fired them. That's considered retaliatory discharge, and it can also potentially get them additional damages. So you want to be careful about the context of everything.

If you implement and apply everything equally, you will not have this issue, because all employees will be treated the same. When any employee is late, their file is documented. It might be a simple reprimand: "You were late. I want you to acknowledge it today, and acknowledge the policy that if you're late more than three times, for instance, you'll be put on probation or given a warning." Whatever your system or the procedures you want to put in place, put them in place, put them in writing, make sure the employee is aware of them, and make sure they're implemented fairly across the board for everybody.

Insurance

So these are just a couple of tips to keep in mind for employers. It's also very, very important to make sure you have your workers' comp insurance and general liability insurance. Most of the time it's required if you're in a location or a business. Workers' comp is required in most cases, depending on the type of business you're in, or if you have a certain number of employees. General liability, depending on your location, may or may not be required, but it's highly recommended. Also, any type of car insurance: maybe your employees are doing errands with their own car, or with a company car. You want to make sure they're covered in general.

Independent contractors

Another area in which a lot of employers get themselves into trouble is independent contractors. They think, "Well, if I make them an independent contractor, I don't have to pay the extra taxes. I don't have to pay workman's comp. I don't have to pay health insurance. I'm going to make them an independent contractor." Well, going back to the original conversation about misclassification: just because you classify somebody as an independent contractor, even if you have them sign an agreement saying they're an independent contractor, if you control their schedule, their tools, their work hours for the most part, and they're heavily reliant on the company, where they basically look more like employees, they're going to be considered employees. In that case, you're going to be penalized and have to pay all the taxes going backwards, the employment taxes and everything else that goes with that, and all the benefits they should have received. So once again, you have to be very cautious about who you call an independent contractor, and who you call what in the business.

Rules that grow with your company

At the end of the day, employment law is a very complicated area, and different areas need to be analyzed. Also take into consideration the size of your company. If your company has more than 50 full-time employees, you're required to provide certain medical benefits, or pay a penalty per employee for not providing them. Keep in mind also that it's important to periodically do audits and classification checks.

Also, as your company grows, which we hope will be the case, right? We always want to see people grow and do better. You're going to start to hit other levels. In other words, when you reach a certain number of employees, other types of acts are now going to apply to you. For instance, the Americans with Disabilities Act might apply to you after you reach a certain number of employees. OSHA, of course, is always there, particularly depending on the industry and the type of company you have. So there's always going to be another set of rules that potentially apply to you, on the state level as well. Many people do not realize it, but even Miami-Dade County has additional employment ordinances that need to be followed. So there are additional ones from the state level down to the county and city level, and those also have to be observed.

Yearly audits and a happy staff

So my overall tip to all business owners is that you should make sure, at least yearly, that you're running an audit on your classifications and your payrolls. Check to see what the new minimum wage is. Check for new rules that might apply. Think about new policies. Go backwards and learn: what have we learned this year? What kinds of issues have we had with employees? Okay, let's put policies in place that make things clear. Let's sit everyone down and train them properly.

And also remember that a happy staff makes a happy company, and hopefully a successful product. It'll foster employees staying longer and feeling better when they have clarity: feeling that they're not oppressed, feeling that there is mutuality between the company and the employee, so that maybe they want to stay with your company. It's always better to have a happy employee. Where you have employees who are not happy, or bad apples, shall I say, your policies will do a lot to help you mitigate the claims they may be able to bring.

So once again, think about policies on how people can report concerns up the chain, whether they're safety concerns, harassment concerns or anything of that nature. The type of policies you put in place depends on the type of business you have. Ultimately, a business is a living thing. It grows, you learn from it, new things happen, such as in this last year, and you adapt. You may have to implement new policies you never even thought of, based on what you're seeing out there. It's the same thing with your clients: we adapt to the market. The same goes for employees. But most importantly, it's important to stay compliant.

Closing

So hopefully this has been helpful for everybody. We're glad to see you again. We hope you follow us on our social media accounts and become followers, and also subscribe to our YouTube channel and our new podcast channel, our Apple Podcasts channel. It's coming up. Thank you so much, and we look forward to seeing you next time. Take care.