Avoid Doubling FLSA Overtime Damages with Proper Analysis and Documentation
Benjamin Franklin once advised that an ounce of prevention is worth a pound of cure. This axiom is still relevant today, especially in the context of the Fair Labor Standards Act (FLSA). As originally written, the FLSA mandated that employees prevailing in minimum wage or overtime lawsuits were automatically entitled liquidated damages equal to their unpaid minimum wages or overtime compensation, thereby doubling any such award. With the subsequent passage of the Portal-to-Portal Act, Congress gave employers a way to avoid liquidated damages if the employer acted in good faith and had reasonable grounds for believing they were in compliance with the FLSA. Thus, with a little preventative pay classification analysis and documentation, an employer may be able to reduce its potential FLSA liability by half.
Despite the availability of this liability-reducing measure, employers do not always take the appropriate steps to take advantage of it, as demonstrated by the Western District of Pennsylvania’s recent ruling in Mozingo v. Oil States Energy Servs., LLC. After a jury found that Oil States violated the FLSA by not paying four crane operators overtime, the plaintiffs filed a motion asking the court to grant liquidated damages in the amount of the jury award. Oil States argued that it acted in good faith in classifying the crane operators as exempt under the FLSA because their compensation plan was standard in the industry. Oil States also claimed that it was reasonable to believe that the crane operators were subject to two overtime exemptions because case law was uncertain. However, these arguments were not successful because Oil States provided no evidence that anyone at the company had researched whether the pay plan complied with the FLSA or that its human resource employees were even aware of the claimed exemptions.
Consistent with the Mozingo case, the Third Circuit Court of Appeals has previously held that industry standards of pay are not evidence of objectively reasonable good faith sufficient to bar liquidated damages under the FLSA. Instead, there must be an “affirmative attempt by an employer to determine the legality of its wage payment practices.” The court also held that while legal or factual uncertainty regarding an employee’s exempt status under the FLSA may be considered when determining liquidated damages, “legal uncertainty … must pervade and markedly influence the employer’s belief; merely that the law is uncertain does not suffice.” In other words, in order to use legal uncertainty to defeat liquidated damages, the employer must first have been aware of that uncertainty when deciding that an employee or group of employees is exempt from overtime under the FLSA.
Although there is over 25 years of guidance on the issue of liquidated damages, this recent case is a good reminder of the steps necessary to mitigate any potential exposure under the FLSA. Employers should carefully review any job classifications they have determined to be exempt and ensure that the rationale behind that classification is documented, and takes into account the current state of the law. Experienced employment counsel can assist in this effort and provide further advice on how to reduce the risk of FLSA claims and liquidated damages awards.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.