The Fair Labor Standards Act ("FLSA"), which was signed into law by Franklin Delano Roosevelt on June 25, 1938 outlawed "oppressive child labor," imposed a federal minimum wage of 25 cents per hour, and required overtime for hours worked over 40 in a week. But the America we live in is far different from that which existed 75 years ago and both employee advocates and company executives have raised serious questions as to how well the FLSA is currently working.
In 1938, Lou Gehrig was playing first base for the Yankees and Action Comics released the first issue of Superman. The American workforce was mostly industrial, child labor abuses were rampant and worker exploitation was the rule rather than the exception. The America of 1938 was filled with coal miners, longshoremen, garment workers and many occupations that no longer exist. Fast forward 75 years and everyone seems to have a complaint about the FLSA and no diamond jubilees have been arranged.
On the employee side, the minimum wage of $7.25 per hour is viewed as inadequate and insufficient for workers to escape the poverty level. Particularly galling to employee advocates is the "tipped minimum wage" for restaurant waiters that is only $2.13 per hour in many states.
On the employer side, businesses have lamented the recent explosion of FLSA cases that are based on misclassification of employees as "exempt" from the provisions of the FLSA. There is a dangerous misconception amongst employers that if a white-collar employee is paid a salary, the employee need not be provided overtime after 40 hours of work. That misconception has led to hundreds of lawsuits and tens of millions of dollars paid out by companies to brokers, analysts, computer technicians, salespersons and other employees who were misclassified as "exempt."
For employers, the heartbreak of overtime cases under the FLSA is that how much you pay your employees generally does not matter in determining whether the FLSA was violated. Unless a company can demonstrate that it specifically pays time and a half-pay for all hours worked over 40 in a week to a "non-exempt" employee, it has violated the law. Throw in liquidated damages of twice the overtime owed and payment of the worker's attorneys' fees, and FLSA math becomes frightening very quickly. And the ultimate irony in FLSA cases is that the more the misclassified employee has been paid, the greater the liability since the hourly rate is based on a higher amount.
This past year saw a record 7,764 FLSA cases filed in federal court, according to the Federal Judicial Center. That number represents a 10 percent increase from 2012, and an almost 400 percent increase from ten years ago. Since these cases are filed by attorneys on a contingency basis, the data is a powerful confirmation that FLSA violations are widespread. Moreover, as employees become increasingly aware of their rights under the FLSA, the upward trend in FLSA lawsuits should continue.
Perhaps, this anniversary will provide an impetus to revisit whether the policy goals that Congress set forth in 1938 are being met or whether changes should be made to the law. In the meantime, employers should take careful note that while the FLSA might be 75 years old, it is just reaching its prime in its scope and effect on the American workplace.
Louis Pechman, a partner in the New York law firm Berke-Weiss & Pechman LLP, has litigated over 100 FLSA cases. He is the founder of waiterpay.com, a site that focuses on wage and hour issues in the restaurant industry.