Companies sometimes walk a fine line between getting the most out of their employees and dealing with the added expense of paying those employees overtime. Under the federal Fair Labor Standards Act (FLSA) all employees working in the United States are entitled to one and one-half times their normal hourly rate for all time spent working after eight hours a day or forty hours in a week. The Act does provide some exceptions to this guarantee, but it is very specific about the types of employees that can be considered exempt from overtime. In some cases, employers will misclassify workers in order to get them to work more than forty hours per week, without paying them the proper overtime compensation.
Although this might save money for the company in the short run, it can end up costing them much more if they get hit with a class action lawsuit. Such was the case for Sears Holdings Management Corporation, which allegedly misclassified about 700 employees in seven states. The lawsuit was filed in Illinois by Robert O’Toole and at least 13 other employees who allege that Sears and Kmart refuse to pay employees the requisite overtime compensation when they work more than 40 hours per week.
Judge Milton I. Shadur, of the U.S. District Court of Northern Illinois, granted class certification to the plaintiffs. Once plaintiffs gain class certification, they have greater leverage, if the suit is legitimate, against the defendant who, like Sears, is often a large corporation with a team of lawyers at its disposal. The result of this greater leverage is that defendants often choose to settle the case outside of court.
Settlements are more desirable than fighting it out in court because the legal battles, particularly with a large class of plaintiffs, can drag on in the courts for months or years, and the legal fees for both parties will build. By continuing the fight in the court system, the defendant runs the risk of having to pay a very large court-ordered award, in addition to their pile of legal fees and the legal bills of the plaintiffs. By settling, they avoid that risk, while simultaneously saving face by refusing to admit to having done anything illegal.
Likewise, the plaintiffs also face a certain amount of risk if they choose to continue the legal battle. By settling, plaintiffs often take less than they could get from a court-ordered award, but it’s often a case of taking the sure thing over the possibility of not getting anything.
A judge will refuse to accept a settlement if one party has a clear advantage over the other. This ensures that both sides are avoiding an approximately equal amount of risk by agreeing to settle.
Sears and the class of plaintiffs have recently agreed to a settlement of $5 million, one third of which will go to cover the costs of the plaintiffs’ legal fees, as well as a $5,000 award for each of the named plaintiffs. After these deductions, each employee in the class will receive approximately $21 for each week that they worked more than 40 hours.
As part of the settlement, Sears continues to deny that it did anything wrong. Instead, it insists that it chose to settle the lawsuit so that it can focus on serving its customers.The Chicago overtime lawyers at the Chicago Overtime Law Center are investigating unpaid overtime claims against large retail chains such as Apple, Walgreen’s, CVS, Urban Outfitters, GAP, Abercrombie & Fitch, Limited, Forever 21, Macy’s, Target, JC Penney’s, Lowes, Marshalls, TJ Max, Nieman Marcus, Saks Fifth Avenue, Best Buy, Home Depot, Apple, Best Buy, Sears, K Mart, J.C Penney, Walmart and other retail chains for misclassifying employees as managers, erasing or altering time sheets or time records, pressuring workers not to report or record overtime, failing to pay for time spent on security checks, and otherwise failing to pay workers for overtime and other wages. If you are the victim this practice call us at (312) 869-4095 or contact us online.