Most employment claims can be avoided by simply being aware of what the law requires. Here are three recurring issues which plaintiffs’ class action attorneys and government agencies are targeting across the country and which can be easily avoided by taking action now.
1. Misclassification of Workers as Independent Contractors
The Internal Revenue Service (IRS) and US Department of Labor (US DOL) have been increasingly cracking down on independent contractor misclassification. Last year, Massachusetts, along with several other states, signed a Memorandum of Understanding (MOU) with the IRS and DOL, formally agreeing to cooperate in investigating independent contractor misclassifications. If a violation occurs, the government agency investigating the matter is obligated to report it to the other state and federal agencies which may be affected by the misclassification, potentially opening up the company to an audit by the IRS or the US DOL.
Massachusetts has one of the toughest tests to be met in order to classify someone as an independent contractor, and the penalties for misclassifying vary with the legal requirement which was not met as a result of the misclassification. For example, if a worker was not paid accrued wages or vacation time upon termination, the Massachusetts Wages Act (MA Wage Act) entitles the worker to up to three times her damages and attorneys’ fees. Further, the President, Treasurer and/or other officer may be individually responsible for non-payment. With the MOU, a violation in Massachusetts of the MA Wage Act will be shared, not only with other Massachusetts agencies, but also with the IRS and the DOL, which may decide to commence an audit of all work-related records. So, now is the time to review all of your independent contractor relationships and make sure that they are all properly classified.
2. Misclassification of Workers as “Exempt” from Overtime and Minimum Wage Obligations.
The most vexing of the overtime and minimum wage payment exemptions under the Fair Labor Standards Act (FLSA). Of the factors required to meet the administrative exemption test, whether someone is performing work that is “directly related to the management or general business operations of the employer or the employer’s customers,” is probably the hardest to determine. When this is paired with the requirement that the worker also “exercise discretion and judgment with respect to matters of significance,” most regular clerical employees, i.e. those that many businesses call “administrative” do not fall under the “administrative” exemption. Other jobs that may be more problematic are individuals engaged in marketing or other work that results in interaction with employers’ customers.
So, take a second look in 2012 at all employees who are believed to fall under this exemption. Doing so will enable to you to reclassify workers proactively, if necessary, before an audit by the DOL or litigation.
3. Failure to Timely Pay Wages
While everyone knows that workers should be paid in a timely manner, many employers overlook the legally required timing of wage payments, particularly with respect to the payment of accrued wages upon termination of employment. In Massachusetts, if an employee is terminated by the employer, regardless of the reason for termination, all accrued wages, including any accrued but unused vacation time, earned bonuses and earned commissions, must be paid on the employee’s last day of employment. If an employee resigns, the employer must pay all accrued wages no later than the next regularly scheduled payroll. We often see situations where employers forget to include accrued but unused vacation time, or fail to include earned bonuses because the payout date is later than the termination date. Other states have different time requirements for payment of final wages, and may not include accrued vacation time in their definition of “wages”. As mentioned above, the Massachusetts Wage Act carries some of the most severe penalties. Other states, like California, automatically impose fines or penalties for a period of time in which the wages remain unpaid. Thus, for companies that employ people in multiple states, it may be easiest to adopt policies and procedures that meet the legal standards of a state like Massachusetts, or to keep handy a chart of all applicable states and their final pay requirements.
In all of these cases, a little knowledge ahead of time will go a long way to avoiding claims, and especially class action claims.