IT Employers Must Pay Attention to Lady Gaga and the NLRB

What do the National Labor Relations Board and Lady Gaga have to do with my support services and sales staff?

The answer is overtime. A December overtime lawsuit against Lady Gaga by a single employee seeking $400,000 and the NLRB’s decision to prohibit class action waivers in employment agreements (for all non-union employers) highlight the value and simplify the initiation of such claims. This is not welcome news to IT employers already facing an onslaught of lawsuits and governmental audits seeking millions in unpaid overtime due to misclassified contractors and salaried and commissioned employees.

Workers historically and uniformly considered contractors and/or exempt from time keeping and overtime requirements, are now frequently obtaining multi-million dollar recoveries from IT companies unaware that such classifications are now considered inaccurate. Indeed, any review of large plaintiff class action websites, quickly reveals their specific targeting of large and small IT companies.  Class action lawyers’ ability to initiate such claims just got easier with the publicity associated with the Lady Gaga case, that thousands of unsuspecting workers are likely misclassified and with the NLRB striking down agreements many employers rely on to protect themselves from class actions.

Employers — especially in targeted industries like information technology — all too frequently learn about overtime rules only after it’s too late.  Once a case is initiated, it is impossible to undo the fact the employer failed to track hours worked in accordance with the law.  This allows plaintiffs the ability to dictate to a fact-finder a self serving recollection of hours worked.  In addition, federal overtime laws allow for class actions by a single employee, who can simply point to (an undeniable) policy of not paying overtime.  Moreover, since industry practice is not a defense, liability for both actual and double-damages is fully retroactive. Worse, specific provisions of overtime laws provide direct individual liability against owners and officers.  Additionally, defendants — including individuals and officers — must pay all of the plaintiffs’ legal fees.  Hence, it is easy to see why so many overtime cases result in significant payments by unsuspecting employers who — in many cases innocently — failed to pay overtime to workers they thought were considered contractors, or commissioned or salaried workers.

The silver lining to this recent news is that it may call attention to the importance of proper classification of contractors and employees before a case is initiated.  Indeed, the form over substance focus of overtime laws often allows an employer to maintain compliant practices without material changes to the way it does business or pays employees. Moreover, the cost of such compliance is usually a few thousand dollars if the right consultants and/or consultants are employed.  The key is to fully understanding the highly technical overtime laws and applying creative and practical solutions that fit to the business model.  Employer’s who have not instituted wage-hour compliance initiatives should do so immediately — before it’s too late.