Wage and employment demand letters

10.1What the letter claims

Usually one or more of: hours over 40 in a week paid at straight time or not at all; an employee treated as exempt from overtime who did not meet the exemption; a worker treated as an independent contractor who was in substance an employee; final wages or accrued leave not paid on separation; unreimbursed business expenses; or meal and rest break violations under state law. The letter sets out a period, an estimated number of hours, and a figure, often doubled for liquidated damages, plus attorney fees.

10.2What the law provides

The Fair Labor Standards Act sets the federal minimum wage and requires overtime at one and a half times the regular rate for hours over 40 in a workweek, for employees who are not exempt.¹ An employer that violates those provisions is liable for the unpaid wages plus an equal amount in liquidated damages, and a prevailing employee recovers reasonable attorney fees and costs.² The limitation period is two years, extended to three for willful violations.³ Employees can sue individually or collectively on behalf of similarly situated workers, and the Department of Labor can investigate and supervise back-pay settlements.

State law adds a second layer in most states: higher minimum wages, daily overtime in some, final-pay deadlines with penalties, break rules, and longer limitation periods. The state labour agency's site describes the rules that apply where the employee worked.

10.3Why these letters are bigger than they look

• Liquidated damages double the unpaid wages.
• The employee's attorney fees are added if they win, and are often larger than the wages.
• The practice usually affected more than one worker, and the claim can be brought collectively.
• Individuals who control pay practices can be personally liable as "employers" under the FLSA.
• Poor time records shift the burden: where the employer kept inadequate records, the employee's reasonable estimate of hours is often accepted.

10.4What to do this week

1. Take no adverse action against the employee. Retaliation for a wage complaint is separately unlawful and easy to prove. A customer or employee is threatening to sue covers the conduct that turns a complaint into a case.
2. Preserve time records, pay records, schedules, job descriptions, contracts and communications, for the employee and for everyone in the same role.
3. Pull the actual numbers: hours worked by week, rate, what was paid, the exemption or contractor classification relied on and why.
4. Check the classification honestly. If the exemption or contractor status does not hold, the question is how much, not whether.
5. Check whether the same practice applied to others, because that is the real exposure.
6. Notify your employment practices insurer, if you have one; many wage claims are excluded, but some policies cover defence costs.
7. Get advice before replying substantively. Send a holding reply by the deadline if needed.

10.5Settling or fighting

Where the records show the claim is right, early resolution is almost always cheaper than contesting, because fees and liquidated damages grow with the case. FLSA settlements generally need court or Department of Labor approval to release the claim, which a lawyer will arrange. Where the records show the hours were paid, or the exemption holds, say so with the records. Either way, fix the practice for everyone in the role at the same time, because the second letter is cheaper to prevent than to receive. Chapter 13 covers the general decision.