Until recently, few people questioned the way salaried employees sweated and slaved, skipping dinners, parties, even vacations, without ever getting so much as a dime in overtime. Toiling longer and harder than anyone else in the industrialized world was simply the price of going for the white-collar gold in the New Economy's office Olympics. Overtime pay was often considered a blue-collar perk for the lowly hourly crowd.
But thanks to some recent high-dollar settlements, the reinstatement of worker-friendly labor laws in California, and increased workloads throughout the 1990s, more and more workers are realizing they might be getting stiffed. The allegations are coming from all kinds of white-collar workers, including retail managers, reporters, pharmacists, sales reps, personal bankers, engineers, computer programmers, claims adjusters, and even lawyers. In growing numbers, these employees are filing suits and, in some cases, winning settlements for as many as four years of overtime pay, plus damages. In the case of General Dynamics Corp. (GD ), this amounted to a $100 million award that is now on appeal. "It's exploding," says defense attorney Victor Schachter, a partner with San Francisco-based Fenwick & West LLP. "Companies that are not addressing these issues now are sitting ducks waiting to get shot at."
Already, large corporations are quietly changing their compensation structures to avoid the legal land mines. They are enlarging jobs to include work that is truly managerial or reclassifying workers as nonexempt so that they qualify for the extra pay. For others, though, it's already too late. Companies such as U-Haul, Taco Bell, Pepsi-Cola (PEP ), AutoZone, Borders Books (BGP ), Pacific Bell, Bridgestone/Firestone, and Wal-Mart (WMT ), to name a few, have all been slapped with overtime suits. Ironically, even the nation's chief law enforcement agency--entrusted with policing the nation's wage and hour laws--has gotten into trouble over the issue. Last year, more than 9,000 former and current Justice Dept. lawyers used a law mandating overtime pay for federal workers to file a class action against the department.
OVERWORKED, UNDERPAID. It's not surprising that people are starting to seek revenge. The lawsuits come at a time when many of the overtired and overworked, now fearful of losing their jobs in the slowdown, are becoming fed up with what they describe as a kind of bait-and-switch tactic. By misclassifying them as managers exempt from overtime, companies can then load them up with work instead of hiring new people, avoiding the added payroll costs. In fact, some allege that all those record-breaking productivity gains of the New Economy came not just on technology's back but also on theirs, especially since the boom was largely achieved without having to dole out big wage hikes to the rank-and-file. "It's unfair, and we don't deserve to be treated like that," says Joyce Moses, a former claims adjuster who is now part of a successful class action against Farmers Insurance Group.
Companies are getting into trouble in part because the nation's overtime laws were formed in the Industrial--not the Information--Age. Plus, the rules can be confusing, leaving lots of room for misinterpretation. Exemptions from overtime, federal laws state, are reserved for managers who either supervise two or more people, make big decisions affecting their corporations, or have the power to hire and fire. But in today's flat organizations, where even high-ranking executives often do their own word processing, "there's not a whole lot of people supervising other people anymore," says employment lawyer Lawrence Lorber, the former Deputy Assistant Labor Secretary under Gerald Ford.
That's why experts estimate that as many as half of U.S. corporations may be misclassifying. Company execs insist that's a huge exaggeration. They point out that managerial titles benefit workers by putting them on a road toward career advancement. The confusion arises in part because the law pertains to the primary duty of a worker, while titles don't necessarily match those duties. Take James Horner, the general manager at U-Haul's Barstow (Calif.) moving center. According to court records filed in a class action, Horner, like other U-Haul International Inc. managers, is expected to work at least 60 hours a week with no overtime. U-Haul argues that its managers spend 50% or more of their time managing, but the court found that they actually spend more time doing the same kind of work as hourly employees. In January, a California Superior Court judge ruled against U-Haul, though the amount of restitution is still being determined.
Though these suits are occurring across the country, most of them are being filed in California, where labor laws are stricter than the federal standards. In California, for example, a manager such as Horner has to spend more than half of his time managing the store and supervise two or more employees in order to qualify for exemption, whereas most states abide by the federal law, which mandates that managing must simply be the employee's primary duty.
Cookie-cutter chains like U-Haul are vulnerable to these claims, experts say, because much of the decision-making happens in central offices instead of at the stores. Retail and restaurant chains are also likely to be hard hit, they say, since computers at chains like AutoZone Inc. do almost everything a manager would--except lead the AutoZone cheer before sales meetings.
CACHET. Not all workers want the extra pay they're entitled to, though. One reason companies have been left unchallenged for so long is because many employees feel their exempt status brings them a certain cachet. This prestige is something U-Haul execs, for one, try to emphasize, saying that if they treated managers more like hourly employees, they would lose status in the eyes of their spouses, friends, co-workers, and future employers. Plus, salaried positions often come with better benefits and chances for stock options.
Then again, if the slowdown continues and more workers find themselves laid off--or stuck putting in more hours with no reward--more employees may come to prefer the pay over the prestige.
By Michelle Conlin in New York