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Representing Workers Under the Fair Labor Standards Act and Illinois Minimum Wage Law Remember the New Deal? The Fair Labor Standards Act (“FLSA”)[1] was enacted by Franklin Roosevelt’s New Deal Congress in 1938. It established minimum wage and overtime standards for a large segment of the workforce. However, many people are unaware that the FLSA continues to protect working class Americans struggling in today’s global economy. The following article provides a broad overview of the FLSA and its state law counterpart, the Illinois Minimum Wage Law.[2] I. What the FLSA Requires The FLSA requires employers to pay covered employees no less than a set minimum wage (currently $5.15 per hour) for the first 40 hours of work per week and time and a half pay for each hour worked over 40 hours per week. The minimum wage must be paid to an employee irrespective of whether he or she is paid on an hourly, daily, weekly, or salaried basis, and very few industries or positions are exempt from its mandate.[3] If the employee is a covered employee, his or her weekly paycheck must meet the federal minimum wage standard of $5.15 per hour for the first 40 hours worked. Further, non-exempt employees must be paid one and a half times their regular rate of compensation for all hours worked over 40 hours per week.[4] The FLSA’s overtime provisions are notoriously complex, and an attorney must negotiate a maze of regulations and judicial interpretations to determine whether an employee improperly has been denied overtime pay.[5] Given the complexity of the statutory and regulatory scheme, the discussion below only highlights some of the broad concepts. Generally, where a covered employee is paid on a salaried basis, the first step is determining his or her regular rate of pay. Unless there is an understanding to the contrary, it is assumed that the weekly salary is paid for a “fixed” 40 hours of work. Therefore, the regular hourly rate of pay is determined by dividing the weekly salary by 40 (i.e., $500 divided by 40 hours = $12.50/hour). Hours worked over 40 are paid at one and a half times that rate (or $18.75/hour). Conversely, an employer and employee may enter into an understanding that the weekly salary is payment for all hours worked in the week. If such an understanding exists, the regular rate of pay is determined by dividing the weekly salary by the total actual hours worked in the week (ie., $500 divided by 60 hours = $8.33/hour). The employee is then paid an overtime rate of one and a half times that regular rate for the 20 hours of overtime that week (or $12.50/hour). The FLSA’s requirements center upon the workweek. The beginning of a workweek may be changed if the change is intended to be permanent and is not adopted to evade the FLSA’s overtime requirements. The FLSA generally does not require payment of a premium rate to an employee who works more than eight hours in a single day. Also, it does not require a premium rate for weekend or holiday work. II. Calculating Hours Worked Generally, an employee is working within the meaning of the FLSA when he is engaged in physical or mental exertion controlled or required by the employer and pursued necessarily and primarily for the business. The following activities are included in the calculation of hours worked:
However, the following activities are excluded:
III. Who Is Covered Because payment of overtime wages may be costly for an employer, FLSA litigation often concerns whether employees are covered by one of the FLSA’s exemptions.[7] The most significant exemption is for “white collar” employees. Determining the applicability of the “white collar” exemption can be difficult for even the most experienced practitioner. Genuine hourly employees - that is, employees who are paid less if they work a six hour day than if they work an eight-hour day - are not exempt as “white collar” employees. However salaried employees - that is, employees who do not receive a reduction in pay if they happen to work less than a full day - may be exempt as “white collar” employees, but only if they satisfy the following criteria:
These exemptions have been interpreted by numerous court decisions and Department of Labor Wage and Hour Division letter rulings. As always, you should consult this authority when evaluating a particular case. IV. Who Is Liable The FLSA uses an expansive definition of the term “employer.” Any person or entity that exercises control over the payment of wages to employees or determines how those wages should be calculated may be liable under the FLSA. Thus, the definition of employer includes individuals, corporations, partnerships, associations, agents or managers, corporate Officers, governmental entities, government contractors, and religious enterprises. V. Retaliation Prohibited The FLSA provides that it shall be illegal for any employer to “discharge or in any manner discriminate against an employee” because such employee has “filed any complaint or instituted or caused to be instituted any proceeding” under the FLSA. [11] Federal courts in Illinois have interpreted the phrase “filed any complaint” to include informal complaints to management concerning non-payment of minimum wage and overtime wages. [12] An employer who discharges, demotes, harasses, or takes other adverse action against an employee in response to a complaint regarding the non-payment of minimum wages or overtime wages has violated the FLSA. The retaliation claim may often be the strongest claim an employee possesses, because employers often react to an FLSA complaint by taking action against an employee. As a result, an employee with a small overtime claim may, overnight, possess a serious retaliation claim. The value of the retaliation claim is enhanced by the fact that while an employee may recover only liquidated damages for non-payment of overtime wages, an employee who suffers retaliation for asserting his or her rights under the FLSA may be entitled to an award of backpay, emotional distress, and punitive damages.[13] VI. Remedies Equitable and monetary relief are both available under the FLSA. Thus, an employer who is found to have failed to pay minimum wages or overtime to its employees may be enjoined from violating the FLSA. Once an employer has been found liable for failure to pay minimum wages or overtime in violation of the FLSA, an employee is entitled to receive the amount of back wages owed plus an additional equal amount as liquidated damages. As the Supreme Court has explained, liquidated damages under the FLSA are considered compensatory rather than punitive in nature and constitute “compensation for the retention of a workman’s pay which might result in damages too obscure and difficult of proof for estimates other than by liquidated damages.”[14] “The FLSA serves as a check on an otherwise under-regulated labor market and ensures that the competitive economic forces at work in this country today do not overwhelm workers who find themselves at the lower end of the economic ladder.” Unlike other statutory schemes, an award of liquidated damages under the FLSA is presumptive, and an employer may only avoid such a payment by showing by “plain and substantial evidence” that it acted with “subjective good faith and objective reasonableness” in failing to compensate its employees in conformance with the FLSA.[15] By all accounts, this is a difficult standard to meet.[16] The IMWL contains a somewhat less generous liquidated damages provision. It provides that, in addition to the wages owed, an employee may recover “punitive damages” in an amount equal to 2 percent of the wages owed for each month during which the underpayments remain owed.[17] However, compliance is encouraged by the fact willful non-payment of wages or retaliation for protected activity may be prosecuted as a Class C misdemeanor under Illinois law.[18] VI. Statute of Limitations One of the stranger features of the FLSA is its shifting statute of limitations period. An employee normally has two years to bring an action under the FLSA. However, the limitations period may be extended to three years upon a showing that the violation in question was “willful.”[19] A finding of willfulness requires a showing that the employer knew or had reckless disregard for whether its conduct was prohibited by the FLSA.[20] Each period in which overtime wages were not paid constitutes a separate violation of the FLSA, with its own statute of limitations period. Thus, for example, an employee who did not receive overtime wages between January 1, 1994 and March 1, 1997 will lose his first week’s wages to the statute of limitations on January 7, 1996 (two years from the end of his first pay period) but his claims will not be completely time barred until March 7, 1999 (two years from the end of his last pay period). To avoid any statute of limitations problems, an attorney should determine at the outset of a case the complete period of time during which minimum wages or overtime wages were not paid. VIII. Class Actions The FLSA specifically provides that no individual may proceed with an FLSA action unless he or she has given written consent to the suit. A signed consent form must be filed with the complaint at the time the lawsuit is initiated. Because of this requirement, class actions under Fed R Civ P 23 are not permitted under the FLSA. However, collective action is not prohibited. Indeed, the FLSA itself provides that an action may be instituted “in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.”[21] While the code of professional responsibility bars lawyers from personally soliciting individuals to participate in an FLSA action, courts can facilitate notice to potential plaintiffs in an FLSA action.[22] Once an action is filed, the named plaintiffs may discover the names and addresses of similarly situated employees to determine to whom class notice may be sent. The individuals receiving notice may then “opt-in” to the suit by returning a written consent form. Such individuals need not be located at the same plant or even in the same state as the named plaintiffs in order to be considered “similarly situated.” As always you should consult with local court rules and practice to determine if your jurisdiction has adopted specific notice procedures. IX Recordkeeping In many ways, a suit under the FLSA appears to take on the attributes of a strict liability cause of action. Unlike an employment discrimination claim with its slippery issues of credibility and intent, a suit for unpaid overtime wages might seem to be rather straightforward; either the wages were paid properly or they were not. Not quite. Witness credibility may be a deciding factor in an FLSA suit if the time records have not been maintained properly by the employer. Normally, an employer is required to maintain for several years hourly records from which overtime may be computed.[23] However, this requirement is honored more in the breach than the observance by less sophisticated employers. As a result, attorneys heading for trial may have no more than their clients’ testimony as to the hours worked by various employees. An FLSA action is not doomed by a lack of documentary evidence. Courts have held that a finding of liability and damages may be predicated upon no more than the employees testimony regarding the hours he or she worked.[24] Indeed, the employer’s failure to produce accurate records in response to an employee’s testimony may justify a full damage award to the employee, “even though the result be only approximate.[25] Further, an award may be based on representational evidence; that is, an entire class of employees may be made whole based on the testimony of a limited, representative sampling of workers. X. Administrative Enforcement Both the United States Department of Labor and the Illinois Department Labor enforce the wage and hour provisions of the respective statutes. However, unlike civil rights statute such as Title VII of the Civil Rights Act of 1964 and the Age Discrimination Employment Act, the FLSA contains no exhaustion requirement; an employee may proceed with his or her lawsuit in court without filing first with the Department of Labor. [26] The seventh circuit has endorsed a lodestar analysis determining the fee award.[27] Thus, proper fee award is a function of counsel’s reasonable number of hours worked and the market rate for that particular work. That is not to suggest that the representation of undocumented workers in an FLSA action does not pose certain problems - it does. While an undocumented worker is entitled to receive a damage award consisting of the underpayment for the actual hours worked, the worker has little protection against retaliation. According to the seventh circuit, an undocumented worker wrongfully terminated for engaging in protected activity is not eligible for reinstatement or backpay from the date of discharge.[29] Until recently, an undocumented worker needed to be cautious before filing a complaint with the U.S. Department of Labor to recover unpaid wages. Pursuant to a 1990 Memorandum of Understanding (“MOU”), the Department of Labor agreed to share information regarding an employee’s documented status with the U.S. Immigration and Naturalization Service. However, thanks in large part to pressure from immigrant and worker advocacy groups, the INS and Department of Labor revised the MOU effective November 23, 1998. The revised IOU provides that the Department of Labor (1) will not make any inquiry into the immigration status of workers and (2) will not examine an employer’s I-9 forms (the documents an employer is obligated to maintain to establish each employee’s authorization to work) during the investigation of a wage and hour complaint. Despite this change, the extent of information-sharing between the agencies remains unclear, and it may still be advisable to proceed with a wage claim in court rather than through the Department of Labor.[30] It is often said that a rising tide lifts all boats. However, despite today’s vibrant economy, many Americans are working harder and earning less than they were 20 years ago.[31] The FLSA serves as a check on an otherwise under-regulated labor market and ensures that the competitive economic forces at work in this country today do not overwhelm workers who find themselves at the lower end of the economic ladder. “Like many civil rights statutes, the FLSA provides for an award of reasonable attorneys’ fees to the prevailing party in litigation. [In the seventh circuit], a proper fee award is a function of counsel’s reasonable number of hours worked and the market rate for that particular work.” ABOUT THE AUTHOR Peter S. Rukin represents employees in labor and employment matters at Vladeck, Waldman, Elisa & Engelhard, P.C. in New York City. He served as a law clerk to the Hon. Harry D. Leinenweber from 1991 to 1992 and worked as an assistant corporation counsel for the city of Chicago from 1995 to 1997. He received his B.A. in history from the University of Illinois in 1988 and his J.D. from New York University School of Law in 1991. VOL B7/APRIL 1999/Illinois Bar Journal/209 [1] 29 USC §201 et seq. [2] The Illinois Minimum Wage Law (“IMWL”), 820 ILCS 105/1 et seq. is patterned after the FLSA and adopts many of the FLSA’s standards. See Meckmet v. Four Seasons Hotels. Ltd., 825 F2d 1173 (7th Cir 1987) Cannella v. Annodyne Corp., 3 WH Cases 2d (BNA) 1072 (ND Ill. Nov 21, 1996). Employees not covered by the FLSA because they and/or their employers are not engaged in interstate commerce (see 29 USC §§ 206 and 207) may nonetheless be protected by the IMWL. Differences between Illinois law and the FLSA will be noted below. [3] Employees and industries exempt from the minimum wage requirement include: bona fide white collar employees (including outside salespersons); employees of certain amusement or recreational establishments and organized camps; certain agricultural employees: employees of low circulation newspapers; certain switchboard operators; seamen on foreign vessels; certain casual domestic workers; and certain skilled computer workers. 29 USC § 213(a). The IMWL exempts employers employing fewer than four persons exclusive of family members, certain agricultural employees, domestic workers in a private home, and members of religious corporations and associations. 820 ILCS 105/3(d). [4] Petroleum distributors are required to pay their employees one and a half times the statutory rate for work between 40 and 56 hours per week and one and a half times the regular rate for all work in excess of 12 hours per day and 56 hours per week. 29 CFR § 794. [5] For example, special rules apply to employees who are covered by a collective bargaining agreement (29 USC § 207(f)), retail and service establishment employees operating on a part commission basis (29 USC § 207(i)), law enforcement and fire protection employees (29 USC § 207(k)), and hospital employees (29 USC § 207(i)), among others. [6] Alexander v. City of Chicago, 994 F2d 333 (7th Cir 1993). [7] The following industries and occupation, in addition to those identified in footnote 3, above, are among those exempt from overtime requirements certain airline employees; certain auto, boat, farm implement, and aircraft dealers; certain local delivery drivers; employees of forestry and logging concerns employing fewer than eight employees; motion picture theaters; seamen: consumer newspaper delivery; certain radio and television broadcasters and taxicab drivers. 29 USC § 213(b). [8] A more complicated test applies to employees who earn a weekly salary of between $155 and $250. Employees who earn less than $155 per week are not exempt. 29 CFR 541. [9] Id. [10] A more complicated test applies to employees who earn a weekly salary of between $170 and $250. Employees who earn less than $170 per week are not exempt. 29 CFR 541. [11] 29 USC § 2l5(a)(3). [12] See Wittenberg v. Wheels, Inc., 963 F Supp 654, 658 (ND 1997) (citing other cases). [13] Travis v. Gary Comm. Mental Health Ctr., Inc., 921 F2d 108, 112 (7th Cir. 1990). [14] Brooklyn Saving Bank v. O’Neil, 324 US 697, 707 (1945). [15] 29 USC § 260. [16] See Reich v Southern New England Telecommunications Corp., 121 F3d 58, 71 (2d Cir. 1997) (“double damages are the norm, single damages the exception”). [17] 820 ILCS 105/12(a). [18] 820 ILCS 115/14; 820 ILCS 105/11. The Illinois Wage Payment and Collection Act (“IWPCA”), 820 ILCS 115/2 et seq., provides a cause of action for recovery of unpaid promised wages (as opposed to minimum wage and overtime wages). The IWPCA provides for a maximum of 10 days of wages as liquidated damages, and the accrual of damages is terminable by an offer of payment [19] Illinois law contains a three-year statute of limitations regardless of whether the violation was willful. 820 ILCS 105/12(a). [20] McLaughlin v Richland Shoe Co, 486 US 128 (1988). [21] 29 USC § 216(b). [22] Hoffman-LaRoche, Inc. v. Sperling, 493 US 165 (1989). [23] Both the FLSA regulations and the IMWA require employers to preserve payroll records for three years. The FLSA regulations further provide that certain “supplemental” records, such as actual time cards and work schedules, must be maintained for two years. 29 CFR 516. [24] Reich v. Waldbaum, 833 F Supp 1037, 1041 (SD NY 1933). [25] Anderson v. Mt. Clemens Pottery Co., 328 US 680, 687-88 (1946). [26] The FLSA provides in relevant part that the court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action. 29 USC § 216(b). The IMWL also provides for attorneys’ fees to the prevailing party. 820 ILCS 105/12(a). While the IWPCA does not provide for an award of attorney’s fees, Nagel v. Gerald Dennen & Co., 272 Ill App 3d 516, 620 NE2d 547 (lst D 1995), a prevailing plaintiff in an IWPCA action may recover fees under the Illinois Attorneys Fees in Wage Actions Act if he or she can prove “that the amount for which he or she has brought the action is justly due and owing, and that a demand was made in writing at least 3 days before the action was brought, for a sum not exceeding the amount so found due and owing.” 705 ILCS 225/1. [27] Bankston v. State of Ill., 60 F3d 1249, 1255 (7th Cir. 1995). [28] See Local 512, Warehouse and Office Workers Union v. NLRB, 795 F2d 705, 718 n 12 (9th Cir. 1986). [29] Del Rey Tortillerin, Inc v. NLRB, 976 F2d 1115, 1120-22 (7th Cir. 1992) (rejecting backpay and reinstatement for employee discharged for engaging in protected activity under National Labor Relations Act). [30] Employers should think twice before contacting the INS in retaliation for their employee’s lawsuit. First, the INS generally will not initiate an investigation in response to such a solicitation. Second, by making that call, the employer is acknowledging that it violated the law by employing a worker without proper work authorization. Third, when two or more employers act together in asserting their rights under the FLSA they are engaged in “concerted activity” under the National Labor Relations Act. As such, employer retaliation (including notification of the INS) constitutes an unfair labor practice and may be prosecuted as such by the National Labor Relations Board. Sure-Tan, Inc. v. NLRB, 467 US 883, 891 (1984). [31] See B. Bluestone and S. Rose, The Unmeasured Labor Force: The Growth in Work Hours, Jerome Levy Economics Institute of Bard College (Policy Brief No. 39) (1998). Reprinted with permission of the Illinois Bar Journal, Rukin Hyland Doria & Tindall LLP |
