Frequently, my clients think that every managerial employee is exempt from overtime. That assumption is dangerous and can lead to liability for overtime — particularly under the new overtime rule which will go into effect on December 1, 2016.

In determining eligibility for overtime, the first hurdle is not the duties performed by the employee.  Instead, look at their salary first.  Under the current regulations, almost every employee who earns a salary less than $23,660 is entitled to overtime — regardless of whether their duties might make them executive, administrative or professional employees under the Fair Labor Standards Act.  On December 1, 2016, that salary threshold will increase to $47,476.  Here’s a link to a previous post about the new rule:  Breaking News: Final Overtime Rule Released

So, if you have a manager making a salary less than $47,476, you will probably be required to pay them overtime starting December 1, 2016.   I strongly encourage you to conduct an audit/review of all of your employees to determine if they will be entitled to payment of overtime under the new rule.

A recent case from the Southern District of Alabama demonstrates the substantial costs that can be associated with violations of the Fair Labor Standards Act.  See Miller v. Spence, No. 14-0468-CG-B, 2016 WL 2350142 (S.D. Ala. May 3, 2016).

The Defendants in Miller were the owners of seafood restaurants along the Alabama Gulf Coast, including The Shrimp Basket, Mikee’s Seafood, and The Steamer.  The plaintiffs were employed as servers at the restaurants and sued for unpaid compensation in the form of wages and overtime.  Among other things, the servers claimed that they were not paid the federally-mandated minimum wage because a portion of their tips were contributed to a tip pool that included non-tipped employees.

Ultimately, the defendants agreed to pay $260,326.54 as part of a settlement for back wages, liquidated damages and class representative incentive payments.  Additionally, the restaurant owners agreed to pay the plaintiffs’ attorneys $130,000.00 in legal fees.

In Miller, Senior United States District Court Judge Callie Granade was asked to approve the settlement.  Judge Granade approved the payment of $260,326.54 to the servers, but requested additional information before approving the payment of attorneys’ fees.

Nevertheless, Miller provides an important warning to employers about the dangers of violating the Fair Labor Standards Act.  Notably, there are attorneys who represent employees and specialize in NLRB violations.  The same attorneys represented the plaintiffs in Miller and the plaintiffs in the Landry’s “Throwed Rolls” case which I discussed previously:  “Throwed Rolls” and Attorneys’ Fees:  The High Costs of FLSA Violations

Yesterday, I wrote about Judge Abdul Kallon’s decision in Ingram v. Passmore, No. 2:14-cv-00004-AKK (Mar. 29, 2016):  Judge Kallon Finds That Ignorance Of The Law Is No Excuse For Failing To Pay Overtime

Ingram is the gift that keeps on giving, because it also demonstrates the danger of attempting to avoid overtime requirements by labeling employees as “subcontractors.”  I previously wrote about that danger here:  How “Independent” Are Your Independent Contractors?

In Ingram, Passmore Towing & Recovery called its tow truck drivers “subcontractors” and hoped that it would not be required to pay those drivers overtime.  But, Judge Kallon found that Passmore offered no evidence to refute the drivers’ assertion that they were actually employees.  As required by the FLSA, Judge Kallon analyzed six factors to determine that the drivers were employees — the first factor being “control.”  He found:  “Passmore hired the drivers, set their commission, disciplined the drivers, paid their wages, and hired managers to supervise their work.  Additionally, Passmore had the opportunity to unilaterally change the conditions of employment,which it did on multiple occasions.”

Ingram provides a cautionary tale for employers.  Ignoring the law and attempting to use the label of “subcontractor” are a recipe for disaster.

On March 29, 2016, United States District Court Judge Abdul Kallon entered an order finding that ignorance of the law could not excuse an Alabama employer’s failure to pay overtime to its employees.  See Ingram v. Passmore, No. 2:14-cv-00004-AKK, 2016 WL 1212570 (Mar. 29, 2016).

In Ingram, Passmore admitted that he failed to pay overtime to office workers.  Based on that admission, the Fair Labor Standards Act would generally require that the employees receive compensatory damages equal to the unpaid overtime, plus “an additional equal amount in liquidated damages.”   But, the FLSA also gives courts discretion to deny liquidated damages if an employer establishes that it failed to pay overtime based upon a good faith belief that its conduct complied with the FLSA.

So, Passmore asked Judge Kallon to exercise his discretion and deny liquidated damages to the office workers.  Passmore asked “the court to excuse his failure due to his purported lack of knowledge and his belief that the FLSA did not apply to him.”  Judge Kallon flatly rejected that argument, finding that Passmore would be liable if he “had the opportunity to acquire the knowledge through reasonable diligence.”  In Judge Kallon’s words:  “In ascertaining an employer’s good faith, ignorance of the law is insufficient to establish the employer’s reasonableness.”

Ingram demonstrates the importance of conducting a regular inventory and review of your employees to ensure that all eligible employees are receiving overtime.  Courts will not be lenient on employers who could have paid overtime, but failed to do so.

Most employers know that salaried employees are not entitled to overtime, and, as a result cannot generally have their salary reduced based upon missed work hours.  If an employer regularly cuts the pay of a “salaried” employee based upon missed work hours, courts may find that the employee is actually an hourly employee entitled to overtime under the Fair Labor Standards Act.  Nevertheless, there are always exceptions to every general rule.  In certain circumstances, the pay of exempt employees can be reduced.  Here are a few examples:

1. If an employer has a policy that provides compensation for loss of salary caused by illness or childbirth, salary can be reduced if the employee exhausts his/her leave bank.
2. In appropriate circumstances, salary can be cut based upon violations of work rules.
3. If the employee fails to perform any work in a work week, the employer is not required to pay salary.

These exceptions and others depend upon the facts of each case.  Consult with your attorney before docking the pay of an exempt employee.