In the top ten employment-related class action settlements last year, employers paid out a total of $2.72 billion — up from $1.75 billion in 2016. The most common types of cases included workplace discrimination, employee benefits and wage and hour issues.

Wage and hour class actions have risen the past two years to reach a combined value of some $1.2 billion. A typical case involves a complaint about misclassification of workers as exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act.

Under the FLSA, if an employer is found to have misclassified workers and this results in them being denied wages or overtime, the employer can be held liable for the total in back pay plus an equal amount in damages.

The number and potential value of these claims have led the author of the annual Workplace Class Action Litigation Report by Seyfarth Shaw to designate wage and hour claims as the No. 1 class action exposure for corporations in 2018.

Proper classification of employees under the FLSA

Most employees in the U.S. are covered by the FLSA, and most are considered non-exempt, meaning they are entitled to the overtime premium of 1-1/2 times their total average compensation for every hour worked past 40 in a given workweek.

To be exempt from overtime, the employee must meet a specific exemption, such as the administrative, executive, professional or commissioned outside sales exemption. There is also an exemption for certain computer employees and other, less common exemptions. These exemptions are primarily based on the employee’s main job duties. They are not based on the employee’s title, the mere fact that they are paid a salary, or the employee’s qualifications.

For example, to qualify for an administrative exemption, an employee must meet all of the following tests:

1. Compensated, on a salary or fee basis, by at least $455 per week
2. Primary job duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or employer’s customers
3. Primary job duties include the exercise of independent judgment and discretion over matters of significance

Most of the exemptions require the employee’s primary job duties to involve significant independent judgment and discretion.

What employers should do to reduce litigation risk

You can decrease the chance of a wage and hour dispute by focusing on compliance and dispute resolution:

• Maintain accurate time-keeping and payroll records using up-to-date systems
• Train the appropriate personnel on the differences between exempt and non-exempt workers
• Conduct routine wage and hour audits to ensure your employees are properly classified
• Keep open lines of communication between management, HR and employees to make sure no one is surprised by their classification.