Wage and Hour Woes - Hospitality Industry Employers Beware

By Andria Ryan Partner, Fisher & Phillips LLP | August 25, 2013

The last few years have brought an explosion in the number of private lawsuits against employers for wage and hour violations and increased scrutiny by the federal Department of Labor and various other state enforcement agencies. The hospitality industry is not immune from these challenges. In fact, the Wage and Hour Division considers hospitality workers and other low-wage workers to be particularly vulnerable. Over the past year, the U.S. Department of Labor Wage and Hour Division has targeted hospitality employers across the country. Investigators often arrive unannounced and demand immediate access to payroll records and employees for interviews to determine whether employees are properly classified and properly paid. In addition to the disruption to your business, the penalty numbers are not insignificant. The Wage and Hour Division recovered more than $280 million in back wages for more than 308,000 employees in FY 2012. The dollar amount of back wages collected increased by more than $54 million and the number of employees receiving back wages increased by more than 24,000 compared to FY 2011.

Here are some areas of particular concern and some practical tips to help you comply with the wage and hour laws and to minimize exposure to lawsuits.

Exemptions

When you classify any workers as "exempt" from the overtime and recordkeeping requirements of the wage and hour laws, be prepared to prove the reason for their exempt status. Federal law (and most state laws) presumes that all employees are non-exempt unless the employer can prove on a case-by-case basis that a particular employee qualifies for one of the precise exemptions. Under this presumption, employers are required to pay at least the applicable minimum wage for all hours worked, pay overtime of 1.5 times an employee's regular rate of pay for all hours worked over 40 in each workweek and maintain an accurate record of the employee's hours worked. Some states have stricter requirements such as daily overtime – overtime pay for hours worked over eight in one day, for example. Conversely, if an employee is exempt, the employer is not required to pay overtime nor maintain a record of the employee's hours worked.

Certain employees who have traditionally been classified as exempt by the hospitality industry are under strict scrutiny by the Wage and Hour Division. In many case, the Wage and Hour Division has found that sous chefs, who may not have direct management responsibility, are not properly classified as exempt employees. The Wage and Hour Division has challenged the exempt status of certain sales managers who, despite their titles, may not actually "manage" any other employees and whose duties do not make them eligible for an "executive or "administrative" exemption. Another area of concern is assistant managers in all departments. The exempt status of such assistant managers is often questionable if the assistant manager does not exercise significant management authority.

The determination of whether an employee is properly classified as exempt is an important decision and one that requires an examination of the employee's actual duties against the somewhat complicated exemption tests under the law. You must decide whether you can prove that every requirement is met as to each employee you are treating as exempt. Be careful about exemption decisions that may have been made simply based on job titles, position descriptions or general industry practice. Thoroughly review the exemption's requirements in light of a candid assessment of each employee's day-to-day duties and responsibilities. Remember, the U.S. Labor Department and the courts apply these exemptions very narrowly. If an ex¬emption is challenged, it is the employer's burden to prove that every element of a claimed exemption applies to the employee for whom it is asserted.

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