In a recent case, Novick v. Shipcom Wireless, Inc., the Fifth Circuit Court of Appeals affirmed that Texas employees who are shorted on overtime payments are entitled to double back pay – both the unpaid overtime they are rightfully owed AND liquidated damages in the same amount. The liquidated damages are intended to mitigate the likely consequences of a bad faith failure to pay employees properly in the first place.
This is a significant victory for Texas workers. The potential for a generous recovery breathes new life into wage and hour lawsuits that might otherwise settle for less than permitted under the federal Fair Labor Standards Act (FLSA). Make no mistake – misclassification, such as when hourly employees are treated as salaried, or employees are wrongly classed as independent contractors – is a growing form of wage theft. Daryl Sinkule, who is a member-partner at Kilgore Law, played a significant role as lead counsel in finding justice for Justin Novick and other employee plaintiffs.
Our Employment Lawyers Understand the Power of Overtime and Other Misclassification Claims under the FLSA
If you believe you have suffered from misclassification at work as a salaried employee or independent contractor and missed out on overtime or other benefits that you were entitled to, bring your case to the employment lawyers at Kilgore & Kilgore. If you want to know your rights under the federal FLSA statute or Texas law, use this link to contact us through our website. Just click here Contact Kilgore & Kilgore, fill out the form on the website, and send it in. We are happy to provide a free evaluation of the facts of your situation.
Employer Eliminated Overtime Through Employee Misclassification
Shipcom, a supply chain management and technology company, needed to hire quickly in 2013 after it was awarded a major contract by the Department of Veterans Affairs. Justin Novick and others were hired as salaried employees to train hospital clients on the use of the Shipcom system. They worked long hours, but Shipcom treated them as exempt employees in order to avoid paying overtime.
A subsequent internal audit in 2015 led Shipcom to reclassify some of these workers as hourly employees. This employer paid some of the workers back pay equal to the unpaid overtime plus five percent. But Mr. Novick had already left the company and got nothing. The workers later sued, arguing that they had been victims of misclassification under the FLSA. Claiming that the misclassification as salaried employees was done in bad faith, the employees sought liquidated damages in addition to unpaid compensation. A jury issued a verdict in favor of the employees, and the Fifth Circuit ultimately upheld the trial court’s rulings on various evidentiary issues, resulting in a victory for the employees.
How Does a Misclassification Result in an Overtime Lawsuit?
The FLSA requires, among other things, states that employers pay employees the federal minimum wage (currently $7.25 per hour) and time-and-a-half for every hour they work in excess of 40 hours in a workweek. It should be noted that some states have adopted wage and hour laws with a higher minimum wage and additional protections for employees, but Texas is not among these. Texas uses the federal wage standards.
The FLSA also contains a number of exceptions to these requirements. Independent contractors, for example, do not get overtime because they are not viewed as employees. Other exceptions exist for executive, administrative, professional, computer and outside sales employees. These employees are often referred to as exempt employees (as in exempt from legal protection).
In order to fit into any of these categories, an employee must be paid a salary and also meet certain tests. The criteria vary slightly for each of the different white-collar exemptions. To fall within the administrative exemption, as the Shipcom employees were originally classified, an employee must:
- Earn a salary of not less than $684 (periodically updated) per week;
- Perform office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- Exercise discretion and independent judgment with respect to matters of significance. This must be a primary duty.
Before Mr. Novick went to trial, however, Shipcom had already determined that the set of employees hired to train hospital workers in the use of the new management system really should always have been treated as hourly employees because they did not qualify for the administrative exemption. It had already offered unpaid overtime and an additional five percent to some of these workers.
Several issues remained, however. The most important of these was whether the employees were also owed liquidated damages, in addition to the back pay. This issue turned on the question of whether Shipcom simply made an innocent mistake when it misclassified the workers as administrative in the first place, or whether it acted in bad faith.
Why the Offer of Back Overtime Pay Was Not Enough
At the outset, it may be possible to muster some sympathy for the employer. After all, the argument might go as, Shipcom found a mistake and tried to fix it. That is the state of the law when the mistake was just an innocent error in the first place. But when the attempt to patch up a problem is not innocent, but perhaps an effort to underpay and then avoid detection, that falls below the standard set by the FLSA. Employers can avoid double damages for unpaid overtime only if they can affirmatively show that:
- their actions were taken in good faith; and
- they had reasonable grounds for their belief that they were complying with the FLSA.
At trial, Shipcom offered little to no evidence of either of these elements. The jury consequently found that Shipcom had acted in bad faith and awarded full liquidated damages. The trial judge found no reason to second guess the jury.
Unpaid Wages Causes Emotional and Financial Distress for Employees
From a practical point of view, this also makes sense for employees. An employee who is underpaid may find him or herself unable to meet regular expenses. The damage done by a missed mortgage or car payment is hardly undone when an employer catches up and makes wage payments months or years later.
FLSA Is a Powerful tool to Protect Employee Rights
The FLSA is about much more than unpaid overtime. Since 1938, this law has been used by lawyers to rescue workers caught up in a variety of wage, hour and working condition disputes. Other issues that are addressed by the FLSA include:
- The rights of nursing mothers in the workplace;
- The misclassification of employees as independent contractors, now famous through the recent litigation involving Uber drivers, truck drivers and contract food delivery people;
- Undercounting of time for hourly-paid workers, especially those who work in caregiver jobs, either in a client’s home or in a residential care facility; and
- Failure to pay minimum wage in the construction industry, where the workforce is fluid and individuals may have immigration concerns.
Learn More about FLSA, Employee Misclassification Claims and Unpaid Overtime Lawsuits
If you have been shorted on overtime pay or other legally protected benefits because you were wrongly treated as a management employee or an independent contractor, or you simply were not paid overtime pay for hours you worked in excess of 40 in a work week, the employment law attorneys at Kilgore & Kilgore may be able to help you. We understand that these lawsuits can be about far more than just collecting back pay. Click the following link to learn more about our representation in wage and hour cases. Contact us for a free review of the facts of your case by clicking here and sending us a contact request Contact Kilgore & Kilgore.