Wage and hour cases, particularly collective and class actions, are among the most costly employment lawsuits for employers. When an employer arguably is mistaken in how it pays employees overtime, does not pay for hours worked, or misclassifies workers as exempt from overtime, the deck is often stacked against the employer. The amount of alleged back pay can multiply fast, and the amount of time and money spent to defend these often-complex cases can be huge. And statistics show plaintiffs’ attorneys are filing more wage and hours cases under the Fair Labor Standards Act (FLSA) and state wage and hour laws than ever. In fact, plaintiffs’ attorneys regularly file “hybrid” wage and hour cases against employers alleging violations of both the FLSA and the state wage laws. After a federal appeals court’s recent ruling in Evans v. Loveland Automotive Investments, Inc., this threat to employers grows.

Doubling up on damages

William Evans, a truck driver for Loveland Automotive Investments, sued his employer claiming it failed to properly pay him in violation of both the FLSA and the Colorado Wage Claim Act (CWCA). After Loveland Automotive Investments failed to answer, Evans received a default judgment against his employer and sought compensatory damages for the amount of the unpaid wages – $7,248.75. He also sought liquidated damages under the CWCA, which equaled 175% of the unpaid wages, or $12,685.31. Additionally, Evans sought liquidated damages under the FLSA, which allows a court to impose an additional amount equal to the back pay amount (essentially, 100% of back pay).

The trial court agreed with Evans on the amount of back pay and liquidated damages under the CWCA but refused to also impose liquidated damages under the FLSA. The trial court ruled that liquidated damages under the FLSA would be a “double recovery,” and the CWCA provided the proper amount for liquidated damages because it provided the greatest amount of relief to Evans.

Denial of FLSA liquidated damages successfully appealed

Evans appealed the denial of liquidated damages, claiming he was entitled to both the 175% of back pay amount under the CWCA and the 100% of back pay for liquidated damages under the FLSA.  The Tenth Circuit Court of Appeals agreed that the employer could be required to pay an additional $12,685.21 (175%) under the CWCA and another $7,248.75 (100%) under the FLSA. Put simply, the court allowed liquidated damages totaling 275% of the unpaid wages, reasoning that liquidated damages under the CWCA and liquidated damages under the FLSA served different purposes. The CWCA liquidated damages were designed to punish employers for not paying employees, while the FLSA liquidated damages were to compensate employees for the time they were without full pay.

While the Evans lawsuit was not a class or collective action, the outcome could have been disastrous in a “hybrid” FLSA collective/class action case, where there could be hundreds of class members each seeking 275% of their alleged unpaid wages. And while the Evans case involved only Colorado state law, most states have some type of wage statute under which employees can file lawsuits in addition to the FLSA. For example, Oklahoma law allows employees to file a wage claim and seek liquidated damages up to 100% of the unpaid wages. Like Colorado law, the Oklahoma Supreme Court has already held that these liquidated damages are meant to punish employees that do not have a bona fide dispute that it owes the claimed wages.

Some suggestions

So, how can employers help prevent getting walloped with claims of unpaid wages and liquidated damages? First, it is crucial for employers to review their pay practices and get help. Decisions to classify a worker as exempt from overtime or to classify an individual as an independent contractor, if wrong, could lead to significant exposure. And any time an employer decides to not pay employees—such as during drive time or safety meetings—should be reviewed to determine whether there is a good faith basis for that decision. Often times, companies can avoid liquidated damages if they can show they sought professional advice on pay practices or classification decisions.

Second, follow trends. The U.S. Department of Labor and plaintiffs’ attorneys have targeted several industries, such as the oil and gas industry, health care industry, and restaurant services industry. Just because some type of pay practice may be common in an industry does not mean it’s legal. So while the argument that “well, other employers did it, too” may make sense when making difficult business decisions, it offers little in terms of a legal defense.

Finally, keep up with changes in the law. The U.S. Department of Labor has recently proposed significant changes to the white-collar overtime exemptions. It also recently issued a guidance memo on the classification of independent contractors, concluding that most workers should be classified as employees. An employer failing to comply with any of these changes could be a plaintiff attorney’s next big payday. The deck continues to be stacked against employers in wage and hour law.  Being proactive is still the way to best play the hand their dealt.

• Evans v. Loveland Automotive Investments, Inc., Case No. 15-049 (10th Cir. 12/10/15)