Thursday, March 10, 2022

Local bag company learns an expensive lesson on wage and hour compliance

A federal judge has ordered American Made Bags to pay $189,756 to a group of 48 employees, half as unpaid wages and half as liquidated damages.

The allegations that came to light in two separate Department of Labor investigations that date back to 2014 include the misclassification of employees as independent contractors, the payment of the employees' regular rate instead of the statutorily required time and half rate for overtime hours, and the failure to keep records of amounts paid to employees. 

According to Wage and Hour Division Acting District Director Dieera Fitzgerald, "Employers must ensure they understand wage laws and fully comply with them." She adds, "After our first investigation at American Made Bags LLC, the company agreed to change their pay practices and comply with the law. We discovered, however, they failed to live up to that agreement, stopped paying overtime and once again shortchanged their workers. The Wage and Hour Division will not tolerate disregard for the law and attempts to cheat workers out of their hard-earned wages."

Of course, Ms. Fitzgerald is 100 percent correct. A quick read of the judge's order shows a case that looks pretty indefensible from the employer's standpoint. While independent contractor classifications can live in a wage and hour gray area, in this case, it appears pretty clear that the company had hired employees, not contractors, it provided them a place to work and tools to use, and controlled all aspects of their work. 

I want to focus on the other non-recordkeeping claim — how this employer chose to pay overtime hours. The company's owner, Thomas Armour, testified that he paid a straight hourly rate no matter how many hours an employee worked in a week, and if an employee worked overtime hours that rate would be calculated backward to reduce to a lower straight-time rate so that it appeared overtime was being paid properly.
Somebody comes and says "I want to earn the equivalency of $11 an hour, how do I do that?" So we would reduce the pay or whatever, . . . we reduced the pay and get them so that the overtime would equal whatever straight pay would be. … I am paying straight time. Exactly. And that is because that is the amount they wanted to earn, so I just calculate backwards.

Do I have to tell you that this method of overtime calculation is illegal? Indeed, as the DOL spelled out in its motion for summary judgment, "This practice – masking employees actual pay rate and relying on an artificially low hourly rate to calculate overtime – resulted in employees receiving the same hourly rate for all hours worked, with no overtime premium for overtime hours, in violation of the FLSA." In other words, you calculate one's overtime premium up from the regular rate, you don't calculate the regular rate down from an overtime premium.

This should be FLSA low hanging fruit. But if there are companies that think it's legal to pay employees in this manner, this is a lesson worth teaching.