Last week we made a report about the differences between an Independent Contractor and regular W-2 employees. After our overwhelming response, we are excited to continue this topic with our followers. This week we are touching on wages and potential private right of actions.
Let’s look at wages. The state minimum wage, if higher than the Federal minimum wage, is the amount every W-2 employee must receive. The typical avenue of recovery is under the Fair Labor Standards Act (FLSA) action in federal court, or, a similar state statute cause of action (in Michigan that is the Michigan Work Workforce Opportunity Wage Act). So long as an employee does not work in agriculture or other exempted business, that employee is also entitled to overtime (time and a half) for every hour worked in a given week over 40 hours. For an employer, this could mean heavy liability for paying a misclassified 1099-worker.
For employees seeking to bring an action, the biggest issue for many employees with these particular statutes is the ticking clock of the Statute of Limitations which interferes with recovery efforts as time goes on. The Statute of Limitations for an action under FLSA and for MWOWA (Michigan Workforce Opportunity Wage Act) is 2 years, which can be extended to 3 years for willful violations. In these employment law cases, the Statute of Limitations begins to run–as things are happening–not solely upon the termination of an employee’s relationship with the employer (as many workers soon learn).
Example: John works for Company A for 7 years as an Independent Contractor. He finds out he was wrongly classified 1 year after leaving the company and wants his overtime pay he is entitled to. John can show that Company A deliberately and willfully labeled all of their employees as 1099 so he is entitled to a 3-year Statute of Limitations.
No matter if John had filed a case the day he left the company, he will not be able to recover the first 4 years of overtime pay because the Statute of Limitations has passed. Since John waited a year even after leaving to file a case against Company A that means that John is only entitled to damages incurred as a result of the misclassification of his last 2 years of employment. Each day of a delay is an exact day reduction in his recovery.
That said, what is the recovery? Chances are high that you were paid more than the minimum wage, but you probably were not compensated for overtime. The Michigan minimum wage statute and the Fair Labor Standards Act both allow for the recovery of the actual amounts owed, plus statutory damages equal to the amount owed (often identified as liquidated damages). Additionally, the employer, if they lose the case, must pay all attorney fees and costs associated with this action. The recovery is worth the effort for employees. And, the knowledge is helpful for businesses seeking to avoid liability.