Self-audit hurts employer in FLSA lawsuit

Sometimes, trying to fix a wrong just causes an employer to dig a deeper hole. Or the mistake is fixed only partially. In the following case, an employer's self-audit of its pay practices resulted in correcting an error but landing the company in even deeper trouble.

With growth comes challenges

Shipcom Wireless, a Houston start-up company, developed an inventive inventory management system for hospitals, landed a huge government contract, and saw its ranks swell from 20 to 30 employees to more than 200 workers. Amid the welter of activity, it determined four people had been misclassified as exempt administrative employees:

• Two current employees were reclassified and paid overtime they should have received. They were then paid properly going forward.
• One was a former employee who got zero.
• The fourth worker, for unclear reasons, continued to be paid as an exempt employee.

The four workers sued, with the former employee serving as the lead plaintiff (surprise, surprise). Misclassified employees are entitled to liquidated damages (i.e., a doubling of lost back pay), but Shipcom didn't double their lost wages. Instead, the company paid a five percent enhancement on the lost wages. In any event, the jury ruled against the employer and awarded full damages under the Fair Labor Standards Act (FLSA).

'No, you first'