Cheating Workers Out of Overtime Pay

The cover story of the October 1 Business Week looks at the booming business in law suits for overtime violations. The New Deal era FLSA guarantees most workers which mandates time-and-a-half pay after 40 hours of work. Even after the Bush administration stripped millions of workers of over-time protection about 115 million employees—86% of the workforce—are covered by federal overtime rules, according to the U.S. Labor Department

So pervasive and routine is the violation of the FLSA law that some lawyers are making fortunes in bringing law suits on behalf of workers. The lawyers typically take a big cut of the settlement, usually 25 percent.

There have been some huge settlements in white collar professions with the number of federal overtime lawsuits more than doubling from 2001 to 2006. One estimate is that companies have collectively paid out more than $1 billion annually to resolve these claims. But the same giant companies keep on violating the laws. Apparently, it is cheaper to cheat employees wholesale and risk paying court-ordered settlements. The lawyers winning these suits say that most clients come to them complaining about other problems and don’t’ realize they’ve been cheated out of overtime pay. Only a small percentage of those cheated take a case to court.

Many employees don’t know their rights. Companies don’t make it easy for them. One common dodge is to give workers a fancy title like “manager” or “assistant manager.” Another trick is for a company mis-classify employees as exempt from the wage and hour laws. and thus improperly failed to pay overtime. A third trick to have employees do a portion of their work “off the clock.” This is common among big retailers. Wal-mart has been found guilty many times, most recently paying over $70 million in a Philadelphia suit.

Naturally, the Chamber of Commerce is denouncing the "FLSA litigation explosion." The real issue is the FLSA violation explosion.