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THE LAWSUIT DU JOUR This might have already happened at your dealership: your payroll clerk is exasperated because the sales people are not punching their time cards. She knows that under federal law, the dealership is obligated to pay sales people their commissions or minimum wage for all hours worked, whichever is higher. But if they have low commissions and they don’t punch in and out each day, she has no way to accurately calculate their hours or their pay. She asks the General Manager what to do. Caught on a busy day with a hundred other things on his mind, the GM comes up with a reasonable solution. At the next sales meeting, he will tell the sales people that they must punch in and out every day or they won’t be paid for the day. Then, he instructs her, if they don’t punch, just don’t pay them, The payroll clerk follows the GM’s instructions. If a sales person fails to punch in and out, she treats it as if he were not there that day. If a sales person punches in but not out or vice versa, she also treats it as if he were not there because there is no way for her to determine the hours he actually worked. Weeks pass with no complaints. Problem solved. Then the federal lawsuit arrives. Doing the Numbers The employee is a former sales person who was terminated for low productivity. He has found an attorney who has filed a class action lawsuit against the dealership for a violation of the federal Fair Labor Standards Act. Under that law, sales people are exempt from overtime but they must still receive at least minimum wage for all hours they work. The sales person claims that the dealership shorted him and his coworkers by not counting all of their hours worked and not paying them the proper minimum wage.
The dealer faces a Hobson’s choice: pay what it sees as legal extortion to settle the case, or continue to fight the case to trial, where it will wind up paying back wages to all the complaining sales people, plus two sets of attorneys fees: the dealership’s and the class of plaintiff’s. The prudent dealer settles and cuts his losses. This scenario is being played out again and again at dealerships across the country. Many personal injury and workers’ compensation attorneys have expanded their practices to include wage and hour matters, and find it to be very lucrative. They know that wage and hour claims are rarely covered by insurance. They also know that it will almost always cost a dealer far more to fight a wage claim than to settle it. Easy money. As a result, wage and hour lawsuits are now the fastest growing type of lawsuit in the country. Preventive Medicine How do you protect your dealership against these guerrilla tactics? The only real defense to is to prevent them from happening in the first place. To do this, you must do two things: first, you (or someone at your dealership) must understand the federal wage hour law as well as any state wage hour laws which apply. You must understand the requirements of each of the various exemptions as well as the rules governing time records, calculating overtime, timing of payments, etc. Second, you must audit your entire payroll to make sure that you are paying people properly. Not just now, but at least once a year...from now on. Job duties and pay plans change over time and what seem like minor changes can result in an employee losing his or her exemption from overtime. The Fair Labor Standards Act has been around since 1938, and is still the least understood of all the employment laws. But that is changing fast. The fact is, whether you like it or not, in the years ahead, you are going to be learning a lot about wage and hour compliance. The only choice you have is whether you are going learn it now when there is time to make corrections and avoid liability, or whether you will wait and let the plaintiff’s attorney teach it to you. Our Dealership Practice Group has decades of experience conducting audits of dealership payrolls and pay practices to prevent the problems described above. If you would like us to help, or if would just like some guidance so you can do it yourself, please contact your regular Fisher & Phillips attorney or contact any Fisher & Phillips office and ask to speak to a member of the Dealership Practice Group.
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The dealership quickly calculates the most hours he could have worked and determines the most they could owe him is only $250. But that’s not the end of it. Under the law, employees are entitled to double the unpaid wages (another $250), times all the sales people in the dealership who claim they’ve been shorted. Plus all of the employees’ attorney’s fees, which his attorney claims to be $10,000. 