When it comes to minimizing OT costs, asking employees to waive their right under the law isn’t a smart option, as this case shows.
Here are the details of the case:
Farha Group #4 Inc., operates eight Subway restaurants in southeast Michigan. In order to lower overtime costs, the company asked employees to sign letters of agreement stating they’d be paid straight time for all hours worked — including OT.
The company also failed to combine employees’ hours worked at two or more of its locations during the same workweek when determining whether OT needed to be paid out.
That all bubbled to the surface during a Department of Labor investigation, leading to violations of the Fair Labor Standards Act’s overtime and record-keeping provisions for failing to pay overtime to workers at one and one-half times their hourly rates for all hours worked beyond 40 in a week.
The franchisee eventfully agreed to pay 53 workers $25,936 in back wages and an equal amount in liquidated damages.
A DOL official noted in a press release that, “An employer cannot avoid its overtime obligations by asking workers to sign agreements to be paid straight time rates for all hours worked. Employees cannot agree to waive their rights under the law.”
John E. Thompson, writing for the Wage and Hour Laws blog, had two important takeaways for HR pros:
The exposure in this particular investigation averaged about $1,000 per employee. The figures can rise exponentially in tandem with increases in the number of affected employees, overtime hours worked, regular rates of pay, and so on. Moreover, the FLSA authorizes other potential liabilities and costs of both monetary and non-monetary kinds.
Wise employers will ensure that none of their pay practices is based upon an incorrect understanding of either the FLSA or the analogous laws of another jurisdiction. What might seem like common sense is not necessarily lawful.