Risk of wage claims in the construction industry
Understanding the risk of wage claims in the construction industry under the Fair Labor Standards Act and how it affects you.
By Timothy R. Hughes
Wage claims under the Fair Labor Standards Act (FLSA) have exploded during the last several years. Between more aggressive enforcement by the U.S. Department of Labor and private lawsuits pursued by employees against employers, employers faced significant increases in risk and exposure in this context.
In particular, subcontracting businesses in the construction industry have often been the target of litigation and enforcement actions. While the new federal administration is likely to bring significant changes in this area of law, the scope and nature of such changes are currently impossible to predict.
The basics of FLSA
The FLSA establishes minimum wage, overtime, record keeping and other requirements. Stated simply, non-exempt workers are entitled to a minimum wage of $7.25 per hour. Non-exempt employees working more than 40 hours per week are entitled to overtime at 1.5 times the employee’s regular rate of pay for time in excess of the 40-hour base. There are a number of exemptions for so-called “exempt” employees. Executive, administrative and professional employees are excluded, for example.
Some employers use independent contractors to perform construction work. Given that the FLSA applies to “employees,” true independent contractors would not be entitled to overtime. However, the question of whether an individual is properly classified as an employee or an independent contractor has been the subject extensive investigations, regulations and litigation in numerous cases. Contractors hiring independent contractors need to be particularly careful to avoid taking on extensive risk in this arena.
Proposed changes prior to the election
In 2016 the Obama administration Department of Labor (DOL) issued significant regulatory changes to the FLSA regime. The most significant regulatory change was a rule that would raise the salary threshold from $23,660 to $47,476 as the minimum level at which an employee could legally qualify as exempt and, thus, avoid overtime pay under FLSA.
The DOL set Dec. 1, 2016 as the implementation date for the new overtime rule. Advocates filed several court cases challenging the overtime rule. The U.S. District Court for the Eastern District of Texas issued a preliminary injunction on Nov. 22 of last year temporarily blocking implementation of the new rules. The Obama DOL appealed that decision.
In the wake of the change in administrations, the Trump administration has filed requests for approved delays in filing responses in the pending appeal. The court recently extended the current reply brief deadline to June 30, 2017.
What happens next?
When it comes to the risk of wage claims in the construction industry, the honest answer is that no one knows for sure what will happen next. President Trump’s selection for Secretary of Labor, Alexander Acosta, was just confirmed on April 27, 2017, after his prior nominee, Andrew Puzder, withdrew. Puzder was the former CEO of CKE restaurants, the parent company of Hardee’s and Carl’s Jr. He was a vocal and outspoken critic of the Obama overtime rule changes, a position that was not surprising, given his background in fast food and the history of DOL and litigation enforcement against the food service industry.
Acosta’s position on the overtime rules may be more nuanced. In his confirmation hearings, he expressed support for increasing the salary threshold for exempt status. He stated in his confirmation hearing, however, that taking the salary level – which had been unchanged since 2004 – and doubling the limit, “does create what I’ll call a stress of the system.”
It appears certain that the Trump administration will have less appetite for aggressive enforcement and protection of workers over employers. It remains to be seen whether his administration will go past blocking the Obama overtime rule and attempt to roll back or alter the previously established FLSA regime and prior regulatory framework.
While the Obama overtime rule changes appear stymied, the underlying FLSA regime remains intact. This means that contractor employers should be careful to document all hours and to properly manage to either avoid overtime or pay it where appropriate. Employers should remain conservative regarding classifying exempt versus non-exempt status.
Finally, employers should guard against attempting to reclassify people who should be employees as independent contractors. Despite the change in the guard, the underlying law and litigation framework provide plenty of avenues for liability exposure to contractors who take risks in this arena.
Timothy R. Hughes, Esq., LEED AP, is the Managing Shareholder of the law firm Bean Kinney & Korman, P.C. in Arlington, Va. A construction, real estate and business attorney, he was recognized as a “Leader in the Law” in 2010 by Virginia Lawyer’s Weekly, a member of the “Legal Elite” for Construction Law by Virginia Business Magazine, and one of the “Best Lawyers in America” for Virginia Construction Law. A former chair of the Construction Law and Public Contracts Section of the Virginia State Bar, he may be reached at 703-525-4000 or by email at email@example.com.