What should an employer do when it determines that it has misclassified employees as exempt and failed to pay them overtime required under the Fair Labor Standards Act? I’m providing an FLSA update to the Alabama Society for Human Resource Management (ALSHRM) tomorrow. In my preparations, I found an interesting Alabama case on this issue: Cornelison v. Southern Synergy, Inc., No. 5:20-cv-01157-MHH, 2024 WL 2807018 (N.D. Ala. May 31, 2024).
In that case, Steven Cornelison sued Southern Synergy claiming that it misclassified him and owed him overtime. Mr. Cornelius also asked the Court to certify a collective action composed of other employees who were misclassified and owed overtime.
Here’s where things went awry. Southern Synergy promptly analyzed its workforce and determined that it failed to pay overtime to employees. So, it smartly calculated overtime owed and paid it to applicable employees. But, Southern Synergy did not give those employees liquidated damages equal to the amount of overtime withheld. And, under the FLSA, the employees were entitled to liquidated damages unless Southern Synergy could prove that it, in good faith, previously believed they were not entitled to overtime. Southern Synergy sent the employees a letter explaining the extra pay, but did not mention liquidated damages and directed employees to contact the HR Director with any questions.
Mr. Cornelison’s attorneys argued that Southern Synergy’s actions were an improper attempt to avoid its obligation to pay liquidated damages under the FLSA. And, United States District Court Judge Madeline Haikala agreed. On September 25, 2021, she issued an order requiring that notice be given to all employees of Mr. Cornelison’s lawsuit and their potential ability to join the lawsuit. On March 22, 2022, she approved the language for the notice that would be provided to employees.
Southern Synergy then required employees to attend a mandatory meeting in April of 2022. During that meeting, the litigation was discussed and employees were directed to contact the HR Director with any questions. They were told that Mr. Cornelison could make settlement decisions for them. And, Southern Synergy omitted information about Court approval required for any settlement.
Thereafter, no Southern Synergy employees contacted Mr. Cornelison’s lawyers or opted into the collective action. So, Mr. Cornelison’s filed a motion for sanctions, arguing that Southern Synergy continued to interfere with the employees’ FLSA rights.
On May 31, 2024, Judge Haikala granted the motion for sanctions. She noted that employers are allowed to communicate with potential class members about collective actions, but that such communications cannot be “factually inaccurate, unbalanced or misleading.” Additionally, the information provided cannot “include communications that coerce prospective class members into excluding themselves from the litigation; communications that contain false, misleading or confusing statements; and communications that undermine cooperation with or confidence in class counsel.”
Mr. Cornelison’s lawyers asked for sanctions equal to the amount of liquidated damages that would otherwise have been payable to members of the class. But, Judge Haikala did not go that far. Instead, she only order Southern Synergy to pay Mr. Cornelison’s attorneys’ fees based on the extended litigation caused by Southern Synergy’s actions.
And, at the end of the day, those attorneys’ fees totaled $86,007.50. That’s a fairly hefty sum. But, Mr. Cornelison’s liquidated damages were approximately $31,000.00. If other employees were entitled to similar amounts of liquidated damages, Southern Synergy may have saved itself money — even though Judge Haikala found that its actions were improper.
Here are my takeaways:
- Regularly review your workforce to determine if employees are receiving the overtime to which they are entitled.
- If you determine that you have failed to pay overtime, fix that problem quickly.
- Determine if you possess a “good faith” defense that may allow you to avoid payment for liquidated damages.
- If you decide to communicate with employees about payments, make sure that all communications are neutral and truthful.
- All litigation involves balancing risk with reward. In this case, Southern Synergy may have taken a risk in its communication with employees and it may have paid off.