Thursday, January 24, 2008

Fortune Small Business Magazine: The ticking time bomb of overtime

Fortune Small Business Magazine has a frightening article this week on fatal wage and hour mistakes. While I've written on this topic repeatedly, this article caught my eye because it spotlights an Ohio company that got caught in the Department of Labor's cross hairs.

Rod Cotner, owner of Jericho Mortgage in Lancaster, Ohio, was shocked when the U.S. Department of Labor showed up at his door to investigate a wage-and-hour lawsuit filed on behalf of his 54 loan officers and sales managers. His company was growing - sales exceeded $4 million that year - and his employees were profiting: "Some of the staffers named in the lawsuit were making over $150,000," he says. "After working in the industry for years, I'd never heard of this happening. Everyone pays their officers on a commission basis. How can someone who makes six figures a year demand back wages for his time?"

Ultimately, the lawsuit cost Cotner a $220,000 settlement of back overtime, untold legal fees, and has caused him to cut his staff to fewer than 10 employees. Needless to say, Jericho Mortgage exemplifies how a Department of Labor investigation can devastate a small business.

What really grabbed my attention was this quote: "Cotner, 37, incorrectly assumed that his employees were exempt under the U.S. Fair Labor Standards Act." Jericho Mortgage was not trying to game the system. He was merely doing what his years of experience told him was industry practice, figuring that commissioned loan officers who were earning a good living during the height of the mortgage boom couldn't possibly gripe about their wages. Nevertheless, this small business owner, who was not out to hurt anyone, has had his business decimated.

The fact is few if any companies do wage and hour perfectly. The biggest mistake the a company can make, though (apart from intentionally trying to skirt their obligations) is to assume that employees are not owed overtime. The regulations that govern who is and is not exempt are complex, tricky, and highly fact sensitive. Companies should be engaging lawyers to scrutinize their exempt classifications to ensure that all employees who are supposed to be paid overtime are being paid overtime. All it takes is one phone call by a disgruntled employee to the Department of Labor for any company to be in the same shoes as Jericho Mortgage. Ask anyone who's been audited by the DOL - those are very uncomfortable shoes to wear.

For other posts I've done on the topic of wage and hour audits and the proliferation of these claims, take a look at:

[Hat Tip: California Labor & Employment Defense Blog]