Workplace Law

July 9, 2002

August 20, 2002


What do you do about a wage claim exposure?

Perhaps the largest exposure to employers nationwide is the obligation to pay overtime to employees misclassified as exempt. If you reside in California your exposure is greater than most.

I can't begin to impress on employers just how large this exposure is. For example, you may be treating technicians as if they were professionally exempt engineers. You may be treating paralegals, supervisors, claims adjusters and other individuals as exempt when you should not be. Typically a company will learn of this exposure after a disgruntled employee has been terminated or someone who's been working a lot of hours complains.

Assuming you know you've got an exposure, what should you do about it? Here are some suggestions:

1. Be clear as to exactly what your exposure is -- how many employees, how many hours, how many dollars? If you did not keep records of hours worked you may divide their salary by 40 hours to find their hourly rate. There is typically a three-year statute of limitations when it comes to wage claims, 10 percent interest, attorneys fees provisions and possible penalties, too.

2. Be very clear about what type of employer you are. Do you have a deep commitment to integrity and legal compliance? Or only when it suits your purposes? If you have an exposure will you ignore, bury or deny it? Or will you deal with it now and move on?

3. If you are an employer of integrity you need to decide whether you are going to deal with this exposure on a group basis or individual basis. If the former, it would be appropriate to say something along the lines of, "There has been some confusion expressed about the employment status (exempt vs. nonexempt) of XYZ employees. In general, exempt employees are professionals, administrators, managers and others who are capable of exercising discretion and responsibility.

"We know the vast majority of you in these categories would prefer to be labeled as an 'exempt/salaried' employee. Not having to punch a time clock is certainly one measure of status. However, we have been counseled to err on the side of caution and will therefore be reclassifying XYZ positions as nonexempt. This means that you will have to keep track of the hours you work, including any overtime. We will try to make this process as painless as possible. You will be required to submit an Overtime Authorization Form signed by your supervisor before you engage in any overtime work. We can easily understand why this announcement may cause some confusion and remain available to answer any questions you may have."

4. Where there is a great deal of trust in an organization, the problem may end right there. You may have 1,500 employees misclassified but only three of them may ask the question "where's my money" for all of the past overtime. Of course, the statute of limitations for filing those claims will continue to run all the time. After three years of changing your practices you can safely assume you are in the clear.

5. Whatever you do, don't retaliate against a complainer or you may buy yourself an even bigger public policy violation claim.

6. It should be noted that it is very difficult to have an employee release a wage claim. Unless there is an actual controversy involved and a claim has been filed, the release of a wage claim may be unenforceable. Before you enter into any release agreements, consult with your employment law attorney.

Plaintiff's attorneys are having a field day with wage and hour class action lawsuits. By following the approach outlined above, you will substantially reduce your risk exposure to such claims. For additional information about the Fair Labor Standards Act go to You can read California's regulations at If you want a White Paper that goes into this area further please send me an e-mail or give a call.

Phin is an attorney and the author of numerous books, workshops and HR tools. He can be reached at (800) 234-3304, or

July 9, 2002

August 20, 2002