Are You Prepared? FLSA Class and Collective Action Readiness

Modern Business Associates


Mar 31, 2017

One of the greatest risks of financial exposure for a franchisee owner is the risk of class and collective action litigation. Particularly, there is increasing focus and attention on collective action lawsuits arising out of Fair Labor Standards Act (“FLSA”) violations.

Because individual wage and hour claims typically involve small amounts of money, the FLSA gives employees a tool to assert their rights as a group. Employees with similar claims can band together in one lawsuit, called a collective action, in order to sue their employer. To bring a collective action, the employees must be similarly situated, which means they must be subject to a common policy, plan or design of their employer’s, even if they work in different company departments or locations.

Minimum wage hikes in multiple states and localities, plus the focus on joint employer status, particularly in the franchisee-franchisor relationship, have contributed to an increase in FLSA collective actions. To ensure you are ready, franchisee owners must remain complaint with the following:

Proper Classification of Employees as Exempt or Non-Exempt.

Employees who are classified as exempt under the FLSA are not entitled to statutory overtime pay for working more than 40 hours in a given workweek. However, it is imperative that employees who are considered exempt meet the appropriate job duties test and are paid on a salary basis in accordance with the law. When auditing your exempt employees, you should review their job descriptions, performance evaluations, and compensation plans carefully. Are they accurately depicting the primary duties of an exempt employee? Are there unwritten deviations from their job duties which would improperly classify them? Do you have a written safe harbor policy prohibiting improper salary deductions?

Proper Classification of Independent Contractors.

The Department of Labor (“DOL”) has increasingly emphasized the importance of penalizing employers who deliberately misclassify employees as independent contractors in attempt to cut costs. Even if inadvertent, the potential penalties for misclassifying an employee are high. As such, it is important to be aware of the factors which differentiate an independent contractor from an employee. A few of those factors include: the extent to which the work performed is an integral part of your business; the permanency of the worker’s relationship with you; and the nature and degree of control by you.

Proper Counting of All Hours Worked by Non-Exempt Employees.

The FLSA considers working hours as any time when work is suffered or permitted to be performed by an employee. One major area of examination should be any employees who you allow to work remotely, or those with access to their emails away from the office. Work performed at home by a non-exempt employee, which their supervisor is aware of, is considered hours worked and must be paid.

Proper Calculation of Overtime Pay.

Non-exempt employees are entitled to 1.5 times their regular rate of pay for any hours worked over 40 in a given workweek. The regular rate of pay includes more than just the employee’s straight wage in certain scenarios. For example, on-call pay, shift differentials, commissions, and non-discretionary bonuses all factor into the regular rate of pay for purposes of overtime calculations. You will want to ensure that your payroll company is properly including these additional wage payments in its calculations of the overtime rate.

Proper attention to these, and other FLSA laws, will aid in thwarting potentially costly and lengthy class and collective action litigation.

Modern Business Associates is a HR outsourcing company offering flexible, cost-efficient solutions for payroll, tax accounting, benefits administration, risk management and HR consulting. If you would like more information about how the experts at MBA can help your business operations, please email us at or call (888) 622-6460 or visit

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