News Column

Lawsuits Against Employers Reach Record Highs

May 20, 2013
disgruntled workers

U.S. workers are filing a record number of federal lawsuits against employers alleging violations of wage and hour laws, such as not being paid overtime and being misclassified as contractors, a recent study shows.

During the 12-month period that ended in March, workers filed 7,764 lawsuits alleging violations of the Fair Labor Standards Act, according to data released this month by Seyfarth Shaw, a law firm that represents businesses based in Chicago. The number of lawsuits has risen 518 percent since 1990.

Attorneys who represent companies and management said the spike in litigation suggests more lawyers are suing employers because the cases can be lucrative while many business owners continue to struggle to understand and comply with complex wage and hour laws.

But labor advocates said the increase is likely due to more workers recognizing that they are being cheated out of wages they are owed.

Advocates also said the economy is still struggling and some employers try to cut costs through illegal work practices.

"In this economy, there is a strong incentive for some employers -- some -- to decrease costs and increase productivity, and one of the ways they do this is by classifying employees as exempt from the Fair Labor Standards Act," said Bob DeRose, attorney with Columbus-based Barkan Meizlish Handelman Goodin DeRose Wentz, LLP.

Under federal law, employers must pay employees at least the federal minimum wage and they must pay overtime that is at least 1.5 times the normal hourly pay.

Some employees, such as independent contractors, are exempt from the law. But it is illegal for employers to classify employees as contractors unless they meet very specific criteria.

Between April 1, 2012, and March 31, 2013, about 7,764 wage and hour claims were filed in U.S. district courts nationwide, Seyfarth Shaw said. It was an increase of 10 percent from the same period the prior year, and it has skyrocketed from 1,257 lawsuits in 1990.

The bulk of the wage and hour lawsuits filed last year alleged violations of misclassification of employees, uncompensated work and miscalculation of overtime pay, said Richard Alfred, chair of Seyfarth's Wage and Hour litigation practice, in a statement.

The increase in litigation suggests more lawyers are suing new and "unsophisticated" companies, perhaps in the hopes of obtaining large settlements, the firm said.

"With no clear catalyst during the past 12 months, this strong spike and new high for FLSA claims makes them one of the top threats to U.S. employers," Alfred said.

Wage and hour lawsuits can be very lucrative for attorneys, and the FLSA is a highly technical, outdated statute that many employers find difficult to apply in the modern workplace, said John Stephen, a partner in Porter Wright's Labor Employment Department in Dayton.

Some employers unintentionally violate the law and underpay their workers because they do not understand what the law dictates, said DeRose, the former president of the Ohio Association for Justice.

But some business owners knowingly deny workers wages they are owed for their own financial benefit, he said.

Businesses can gain an unfair competitive advantage if they underpay their workers by misclassifying them as contractors and denying them overtime pay, he said.

Misclassifying employees also means employers often do not have to provide benefits and pay unemployment insurance and other taxes.

Awareness of "wage theft" has increased because of a string of high-profile cases brought by the labor department and lawsuits filed by workers alleging the activity, said Brennan Grayson, a labor and employment lawyer with Kircher, Suetholz & Grayson in Cincinnati.

Last fall, the labor department filed a complaint seeking $285,000 in backwages for 171 workers at three El Rancho Grande restaurants, including one in Dayton. The complaint alleges the restaurants failed to pay minimum wage and overtime compensation.

The department of labor has filed similar complaints across Ohio against the owners of a Subway franchise, a sushi chain and a cable installation company.

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(c)2013 the Dayton Daily News (Dayton, Ohio)

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