Stephanie N. Grimoldby Aug. 31, 2015, 9:53am


Editor’s note: This is the second installment in a series examining labor litigation brought under the Fair Labor Standards Act that will delve into the issues driving FLSA litigation, examining the growth in the number of lawsuits and the impact such litigation is having and will have on employers of all sizes and types and their employees. The first article can be viewed here.

CHICAGO (Legal Newsline) - The increase of wage and hour lawsuits being filed in Chicago federal courts in the last 25 years is reflective of a national trend.

And with two new notifications from the U.S. Department of Labor regarding revised Fair Labor Standards Act regulations and an updated interpretation of worker classification, area litigators not only expect to see FLSA suits on the rise again, but to see businesses overhaul their structures.

“Wage and hour issues make it expensive to have employees,” said John Michels, a litigation attorney and partner at Lewis Brisbois Bisgaard and Smith LLP Attorneys in Chicago.

The Labor Department has announced plans to raise the “white collar” exemption to the FLSA in 2016, essentially doubling the current minimum salary for exempt employees to $47,892 annually. Nearly five million additional workers could become exempt under the changes and entitled to overtime pay.

The Department of Labor also proposed the exemption be automatically updated each year by using the 40th percentile of weekly earnings for full-time salaried workers nationwide, meaning businesses will have to be on their toes to stay in compliance as the numbers could change annually.

Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce, said many may see how employers could be affected adversely as they struggle to keep abreast of continual regulation changes. But he said he believes the negative impact will extend to employees, too, despite the DOL’s claim that such changes are meant to protect them.

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“The overtime is going to cost a lot businesses … [and] at the end of the day, the employees are not going to come out ahead,” Freedman said. “[There will be] a qualitative impact: loss of workplace flexibility, loss of morale, loss of opportunities, potentially fewer benefits … there’s definitely an array of consequences for employees being classified as salaried exempt, not hourly non-exempt.”

Mere weeks after the DOL’s white collar exemption news, the Department released its Administrator’s Interpretation No. 2015-1, a 15-page document intended to better guide federal judges ruling on cases involving alleged misclassification of independent contractors. The document concludes that “most workers are employees under the FLSA’s broad definitions.” And that doesn’t leave much room for the imagination, Michels said.

“The DOL is moving to shut down employer's ability to use independent contractors [so that] all people [are] subject to wage and hour law,” Michels said. “It’s created a bit of a fire storm. It’s a pretty clear indication they're trying to force employers or companies to comply with whatever regime the executive office [has planned].”

The interpretation likely will go a long way in the court system, Freedman said. And that could be problematic, he said, because it may overstep boundaries, reading more like a federal regulation than it should.

“That’s one of the big problems with these (Administrator’s Interpretations) … they’re supposed to be very narrow and not change any underlying law,” he said. “This is going too far.”

If the courts follow the guidance within the Administrator’s Interpretation and rule that an independent contractor should be a rare form of a relationship between an employer and a worker, businesses - such as delivery companies, some medical groups, newspapers, software companies and the like - definitely will be affected, Michels says. And they’ll find ways to adapt.

“My take on that is that if they eliminate independent contractor positions, companies will do something else - either reshape the structure so they're not getting these people as employees under the new law, or they'll simply go to the ad-hoc workforce,” Michels said.

Businesses could hire more part-time and short-term workers to avoid having employees at all, he said. And it would make it almost impossible to unionize.

“Say we have a Supreme Court brief that has to be written within 60 days,” Michels said. “I know 50 or 60 lawyers out there [who can do the work]. I'm going to hire those people for 60 days, and at the end of it, that's it. That's what I would do, and that's how I would tell a company to start thinking about managing it.”

Not only could company structures change, but the philosophy behind hiring techniques could evolve.

“What we look at in terms of management skills will change,” Michels said. “What constitutes competent management is getting away from motivating people toward a long-term goal in a company. [It’s going to be] easier to assemble teams that are highly effective to do specific things and then break them up and scatter them to other jobs.”

With business models up in the air, the importance of the lawsuit currently pending in California against ridesharing company Uber Technologies - in which the $50 billion startup is facing a possible class action lawsuit for allegedly misclassifying 160,000 of its drivers as independent contractors - is monumental.

Hanging in the balance is the crux of the FLSA and its provisions: minimum wage, overtime and other protections only extend to employees of a company.

One thing is for certain, say those who deal with the litigation regularly: as regulations and interpretations surrounding the FLSA continue, lawsuits will abound.

“The cost of labor is one of the biggest costs of running business,” said Maureen Salas, an attorney and shareholder in Chicago-based Werman Salas PC, a firm which represents large numbers of employees in wage and hour cases under the FLSA.

“Sometimes [businesses] take measures that they shouldn't be taking,” Salas said. “I do think that we’ll see an increase of [FLSA] cases. You’re going to find employers who find creative tactics to not have to follow through with their obligations.”

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