Without Good Record-Keeping, Employers Have Difficulty Defending Wage/Hour Claims Under the FLSA

Wage and hour law violations have become a significant stumbling block for local companies in recent years.  There is no doubt that courts have seen an increase in litigation based on employers misclassifying or miscalculating employees’ wages under the Fair Labor Standards Act (“FLSA”).  In the recent case of Jin v. Any Floors, Inc., et al., Civ. No. 1:10-cv-1201 (E.D. Va. Mar. 5, 2012), the Federal Court in the Eastern District of Virginia gave insight into each major provision of the FLSA by providing a thorough analysis concerning its decision.  Although the court ultimately determined that the business and its owner were liable for violating the FLSA, the defendants raised several notable defenses.

The FLSA requires employers to pay minimum wage and overtime compensation to employees who work longer than forty hours in one single workweek.  Overtime compensation must be at least one and one half times the employee’s regular hourly rate, and an employee’s “regular rate” is calculated by including all payments made to the employee or made on behalf of the employee.

In this case, the defendants argued that the plaintiff was not an “employee” within the meaning of the FLSA, but rather an independent contractor who was not covered by the FLSA.  The Fourth Circuit uses a six-factor test to determine whether a particular individual is an employee or independent contractor.  In analyzing these factors, this court determined that the individual was an “employee” because, among other things, the business, which was involved in the carpet installation market, would give the plaintiff instructions every morning on which job site he was to attend that day and when and how he should perform his duties, and would pay plaintiff a daily wage, regardless of the skills he exercised in carrying out each job.

The business owner then argued that she was not an “employer” within the meaning of the FLSA and could not be held liable for any violation assessed against the company because she only had limited knowledge of the company’s business and only signed the employee’s checks.  However, the court held that the business owner’s check signing (or failure to do so) was essential to causing plaintiff’s damages; thus, the business owner was personally liable for the FLSA violations and fit within FLSA’s broad definition of “employer.”

Interestingly, in challenging plaintiff’s damages, the company defended based on the standard of proof.  Rather than arguing that the corporate records did not reflect the damages plaintiff claimed, the company merely argued that plaintiff failed to prove his damages.  This can be a risky strategy for a business since an employer has the duty to maintain accurate time-records.  In FLSA cases, the employee does not need to prove each hour of improper compensation, but only needs to prove the hours he worked with reasonable certainty.  In other words, the employee easily meets his burden as long as the court can make a just and reasonable inference that the amount claimed by the employee is the amount owed to the employee.  In this case, the court relied on plaintiff’s oral testimony about the hours he worked and his self-created documents to prove damages, and this was enough.

The court ultimately held that the business and its owner were jointly and severally liable for the employee’s unpaid wages and overtime pay, reminding employers that the best defense for businesses is to conduct internal audits to avoid these sorts of claims before they reach the courthouse.