Misclassification of Employees Creates Giant Losses

Cases of wage-and-hour complaints are on the rise leading to increased costs to employers struggling to shore up their HR procedures and policies. In 2011, employers settled over 100 wage-and-hour cases; about 2.5 times the number of cases in 2007 and 2008. What’s more, most of these settlements were between $1 and$2.5 million, according to the National Economic Research Associates. Also, most of the payout money has come out of the retail and financial services industries and involved allegations of missing breaks.

Two recent cases help hammer the point home. User reviews and local-life search engine Yelp recently settled a suit alleging that almost 1,000 account executives had been misclassified as exempt and thus failing to pay them overtime. The settlement costs were set at a cool $1.25 million. Wal-Mart suffered an even heavier burden when the company was accused of misclassifying a group of vision center managers as exempt and refusing to pay overtime. Wal-Mart eventually agreed to pay out $4.6 million in over-time pay and nearly $500,000 in civil damages.

The year also saw the highest number of settlements between $5 million and $20 million. Over the four year span between 2007 and 2011most wage-and-hour allegations involved overtime (39 percent), off-the-clock work (19 percent), employee misclassification (17 percent), and missed breaks (15 percent).