The new workplace revolution: Wage and hour lawsuits

May 29, 2012: 1:34 PM ET

More than 7,000 collective actions were filed in federal court in 2011 alleging wage and hour violations, an approximately 400% increase since 2000.  What's driving the spike?

By Jonathan A. Segal

FORTUNE -- Starting with the civil rights legislation of the 1960s, including Title VII of the 1964 Civil Rights Act, to Roe v. Wade, and Title IX, the second half of the 20th century was in many ways devoted to social change. These efforts reverberated throughout the workplace. And the core of employment-related lawsuits unsurprisingly involved these issues.

During those decades, we saw a dramatic increase in legal challenges to unlawful discrimination, harassment, and retaliation at work. Employees appropriately fought against not only animosity based on gender, race, and national origin, for example, but also stereotypes based on them. Stereotyping is often a form of impermissible discrimination.

However, in recent years, something has changed. While we still see a strong and steady stream of discrimination claims, another type of employment suit has become the darling of plaintiffs' lawyers: wage and hour suits. In the employment arena, the civil rights revolution has morphed into a kind of wage and hour revolution.

More than 7,000 collective actions were filed in federal court in 2011 alleging wage and hour violations under the Fair Labor Standards Act, an approximately 400% increase since 2000.

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Some legal clarification: a collective action is a special type of class action suit that applies only to claims brought by a group of employees under the federal Fair Labor Standards Act, claiming they were not paid what they were owed because either they were misclassified as exempt from overtime or they were properly classified as non-exempt but they were not paid for some of the time they worked (for example, by being required to work off the clock without being paid.).

It's not just small employers that are getting hit. It's the big guys too. The deeper the company's pockets, the more attractive the target.

Take one common claim: employees claiming that they were required to work off the clock. There has been a salvo of such claims, from employees at companies like Wal-Mart (WMT) and Merrill Lynch. And the U.S. Supreme Court is currently considering whether outside sales representatives for GlaxoSmithKline (GSK) were properly classified as exempt from overtime pay. Claims don't mean the employer did anything wrong, but they do involve considerable time and money to defend.

What's driving this spike?

Overall, companies see the business benefits of keeping a tight ship when it comes to discrimination. To exclude someone because of who they are is to deprive your company of their talent. And as employers grow increasingly progressive and compliant with equal opportunity regulations, it may become a bigger business risk for a plaintiffs' lawyer to sue companies on a contingency basis, where they get paid only if they win.  I know this will be shocking to some (or not at all, as the case may be), but plaintiffs' lawyers are not simply advocates for social justice.

Confusing laws. While the anti-discrimination laws make sense to most of us, wage and hour laws are often counter-intuitive. For example, if an employee is exempt and is late to work every day, you may be able to discipline him for being consistently late, but you can't dock him for his lateness. If a non-exempt employee works overtime without permission, you almost always have to pay her for what you may perceive as "stealing your time," but you may be able to discipline her for the unauthorized work.

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Lawyers in search of new markets. Because of changes in the legal industry like malpractice reform, many personal injury lawyers are looking for a new way to make a living. Some of the wage and hour plaintiffs' lawyers I deal with are former "ambulance chasers."  Now, they chase paychecks. Some are even lawyers who used to represent big companies who have switched sides because of the amount of money to be made.

Old laws, new world. The federal law, the Fair Labor Standards Act, was enacted in 1938 and there have been only relatively minor changes to it since then. The law does not align well with today's working world. It was enacted when the U.S. had a manufacturing-focused economy, not one primarily based on services.  In today's working world, plenty of employees can (and do) work from home, sometimes off the clock without pay. The clash creates, as one plaintiffs' lawyer said with glee, "opportunities for litigation."

Rigid labor market: Time to sue? Finally, when jobs are plentiful, unhappy employees tend to move. When they are stuck because of a sluggish economy, as many are today, they are more likely to sue.  Many employees feel stuck and wage and hour litigation is a way for a group of employees to try to get more money without "personally" attacking their employer. You, the employer, are simply not complying with a legal technicality.

Of course, some plaintiffs, and their lawyers, make it very personal and argue that the companies acted in bad faith. In the absence of good faith, employees can get even more settlement money.

Indeed, some employees are arguing that their employers' alleged failure to pay them money owed is a form of racketeering. Under RICO (Racketeer Influenced and Corrupt Organizations Act), employees can win four years of back pay and managers can be held personally liable for the unpaid wages.

If you are an employer or a manager, do not assume that you are immune from this sort of lawsuit. Employers need to look at their time-keeping systems, training programs, job descriptions and responsibilities, and actual practices to make sure they are following federal and state laws.

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If you are a non-exempt employee, make sure you record all of the time you work.  And, if you are required, encouraged or even asked to work off the clock without being paid, you should bring it to the attention of someone in your organization with the authority to correct the problem.

Of course, employees have the right to bring claims, too.  But the amount of money an employer has is limited. And the money that is spent on lawyers who defend these cases has to come from somewhere. Higher prices to consumers? Less money for profit-sharing? We all pay for litigation.

Jonathan Segal is a partner at the law firm Duane Morris LLP, where he is a member of the firm's employment, labor, benefits and immigration practice groupThis article should not be construed as legal advice. 

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