Employers Beware: When State Wage & Hour Laws Don’t Intersect With Federal Law

Two recent settlements in wage and hour class actions highlight the risks employers face if they are unaware of differences between federal law and state wage and hour laws. In Turner v. Mercy Health System, Pa.Ct. C.P. 2008 No. 3670, and Vanston v. Maxis Health System, Pa.Ct.C.P. 2008 No. 5155, a Pennsylvania trial court recently approved class action settlements totaling $2.75 million, including more than $700,000 in plaintiffs' attorneys' fees, to be paid to approximately 3,200 employees of two health systems, both part of Catholic Health East. The hospital employers in these cases followed a practice, which is lawful for health care facilities under the federal Fair Labor Standards Act (FLSA), of paying employees time-and-a-half for overtime hours in excess of eight hours in a work day or 80 hours in a two-week pay period. Federal law permits this practice, known as the "8-and-80" rule, for health care institutions, because it is sometimes useful to have an employee work one short week and one long week within a pay period in order to facilitate scheduling for night and weekend coverage.

However, this Pennsylvania trial court held that the Pennsylvania Minimum Wage Act has no exception to the requirement that employees be paid time-and-ahalf for overtime worked in excess of 40 hours in a work week. In March 2010, the Pennsylvania judge overseeing both cases had ruled in favor of the plaintiffs, finding that Pennsylvania's law was clear and unambiguous, and did not allow for the 8-and-80 exception. Thereafter, it was just a question of calculating how much these hospital employers owed their Pennsylvania employees who had been paid under the 8-and-80 method.

Employers must comply with federal, state, and local wage and hour laws, and if state or local laws are more favorable to employees, the FLSA specifically provides that those more favorable provisions must be followed. So what are some of the issues about which employers should be cautious? Here is a nonexhaustive list:

1. 8-and-80 Rule: Under the FLSA, this practice can only be used by health care facilities. But many state wage and hour statutes do not permit this practice at all.
2. Fluctuating Work Week Method: Federal regulations under the FLSA permit an employer, in certain circumstances, to pay an employee a fixed weekly rate for fluctuating hours, and, if the employee works more than 40 hours in a work week, to pay the employee only a half-time overtime premium for the overtime hours, because the employee's fixed weekly salary was intended to cover the base hourly rate for all hours worked in the week. This fluctuating work week method is not recognized by many states. In Pennsylvania, for example, this method cannot be applied to nonexempt employees who are paid a fixed weekly salary; it may be applied only to day-rate or job-rate employees.
3. Minimum Wage Differences: Many states, and some municipalities, have minimum wages that are higher than the federal minimum wage.
4. Timing of Wage Payments: Federal law generally requires that employees be paid for regular and overtime hours in the regular payday for the pay period in which the regular and overtime hours are worked, but in some circumstances permits overtime hours to be paid on the next regular payday. Some states have stricter payment requirements, particularly for payment on termination of employment.
5. Promises of Paid Breaks. Federal law generally does not require that employees be provided with "break" time, although there is a presumption under federal law that, if an employer permits breaks, short breaks of up to 20 minutes are "compensable time." Some states do require employers to provide breaks of varying durations during shifts of various lengths, and laws vary from state-tostate as to whether these breaks must be treated as paid time. Employers often get into trouble, even in states which do not mandate breaks, by providing in employee handbooks or otherwise that employees may take breaks and then failing to allow employees time away from work for the break. Wal-Mart faced substantial verdicts because of this practice, even in Pennsylvania, a state which does not mandate paid breaks.

Finding violations, even though they may seem to be minor and technical, in employers' wage payment practices has become a cottage industry in the plaintiffs' employment law bar. Even seemingly minor violations, when multiplied by hundreds of employees who have been subjected to the practice over the several-year-long period during which recovery is permitted, can yield multimillion dollar verdicts or settlements. If your company has not had its wage and hour and wage payment practices reviewed recently by an employment lawyer, these two settlements should serve as a cautionary tale.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.