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Wisconsin Law Journal, Take care in classifying employees

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by Jane Pribek
March 8, 2010

Karla Osolin was disappointed with her first paycheck from Turocy & Watson LLP, a boutique intellectual property firm in Cleveland, Ohio.

She had previously worked as a legal secretary for the international firm Jones Day, and the pay didn’t seem right.

Then she realized she wasn’t being paid overtime, and filed suit against her new firm.

A federal court in the Northern District of Ohio has now conditionally certified a class of about 40 legal secretaries — both current and former employees — under both the Fair Labor Standards Act (FLSA) as well as Ohio’s Fair Wage Standards Act.

The plaintiffs are claiming that the firm misclassified them and failed to pay required overtime.

Regardless of its outcome, the suit offers a lesson to employers generally and law firm managers particularly, according to a trio of Wisconsin wage-and-hour attorneys.

Many employers, including law firms, suffer from the misconception that simply paying an employee a salary instead of an hourly wage automatically exempts them from receiving overtime, says Madison attorney Tamara B. Packard, a partner at Cullen, Weston, Pines & Bach LLP.

Packard noted that the recession has increased the wage-and-hours portion of her employment law practice.

“I think employers are feeling the pinch, and they’re pinching their employees right back. They’re looking for ways to cut costs and expenses, and looking for ways for employees to do more for less,” she said. “Those efforts, while understandable, are also getting employers into trouble.”

The most likely scenario in the law firm setting — a culture that traditionally calls for long hours and hard work — is a legal secretary who decides to help out by working through lunch, or by staying a little late, said Roger L. Pettit, president of Petrie & Stocking SC in Milwaukee.

Then the employment relationship sours, and suddenly, the secretary wants to be paid for all the extra hours.

It’s something every employer should be concerned about, cautioned Michael F. Brown, of Peterson, Berk & Cross SC in Appleton, because the potential liability for violations is substantial. Liquidated or double damages for the overtime may be awarded under the FLSA, as well as plaintiff’s reasonable attorney fees and costs.

Moreover, it is the employer’s burden to overcome a presumption that liquidated damages are appropriate — although in some cases, the employer can avoid liquidated damages if it meets its burden of proving both that it was acting in good faith and it reasonably believed its conduct was consistent with the law.

A primer for law firms

Labels are not controlling in wage-and-hour laws. A worker may be labeled a “salaried employee” by an employer, but may still be deemed an hourly worker under the Wisconsin or federal definitions, explained Brown.

The wage law definition of “salaried basis” at 29 CFR § 541.602 discusses what types of deductions and other employer conduct could make a “salaried” worker an hourly — and overtime-eligible — worker. Among them is when an employer improperly docks a “salaried” worker’s wages.

Under 29 CFR 541 and DWD 274.04, an employee is entitled to overtime unless he or she falls into one of three exemptions: professional, executive or administrative. The burden of proof is on the employer to show that an employee is covered by an exemption.

To be eligible for the professional exemption, an employee must have an advanced degree in his or her field, like a lawyer or a doctor.

“There are dangers for law firms especially because we think of ourselves and our secretaries as professionals, and while they are in many sense of the word, from the standpoint of the FLSA, they’re not. They need to be considered hourly employees,” said Packard.

She noted that a Department of Labor advisory opinion from 2005, FLSA 2005-9, specifically addressed the issue of whether a paralegal with a four-year degree, a paralegal certificate, CLE and 22 years’ experience could fall under the professional exemption, and concluded he or she could not.

Rather, the exemption is only available for paralegals who possess advanced specialized degrees in other professional fields and apply advanced knowledge in that field in the performance of their duties. For example, an engineer, hired as a paralegal to provide expert advice on product liability or patent cases, could qualify.

The executive exemption requires the employee to manage two or more employees, so that his or her primary duty is management. The employee must also have the authority to hire and fire, or to make recommendations that are given weight in those decisions.

The third exemption is administrative. Employees fall into this category when they provide work directly related to management or general business operations and exercise discretion and independent judgment in matters of significance.

What to do

Wisconsin employers, including law firms, need to look not at job titles, but at job duties actually performed, Brown emphasized.

For instance, often employers assume an employee is an exempt “executive” based on the employee’s managerial title, but the employer does not examine whether the employee’s job duties actually involve the specific functions laid out in DWD 274.04(1)(a) or 29 CFR Part 541. If the job duties don’t meet the specific exemption criteria, it doesn’t matter that the worker is titled a “manager” or “executive.” The worker is entitled to overtime pay.

The easiest course of action for law firms is to classify all staff except partners and associates as non-exempt and pay them hourly, said Packard.

Pettit said that new hires should be instructed up front to accurately report their hours. Then they can’t complain they weren’t paid overtime if they didn’t work in excess of 40 hours per work week. This is particularly important if you have employees with flex-schedules or who work remotely.

If you’re uncertain about the propriety of a classification, and it’s foreseeable that your employees may work over 40 hours per week on a regular basis, get some help.

Brown cautioned, “If a well-informed attorney does not review your wage practices on day one, then at year two, a well-informed plaintiff’s attorney will likely do so upon receiving worker complaints.

“An employer with wage-compliance efforts upfront is much more likely to prevent violations and lawsuits,” he added. “And if a lawsuit did still occur, the FLSA allows an employer to use proof of good-faith compliance efforts as a way to reduce liability and damages.”

Correy E. Stephenson of Lawyers USA contributed to portions of this article.

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