For almost two years now, the Kentucky Supreme Court has permitted wage and hour class actions in Kentucky under the Kentucky Wages and Hours Act (the “KWHA”), which is codified at KRS 337 et seq. The potential exposure for employers in these cases can exceed, by approximately tenfold, the exposure to employers in cases under the federal wage and hour law, the Fair Labor Standards Act (the “FLSA”).
This article will review the history of wage and hour class actions in Kentucky, the difference in procedure and remedies between the state and federal law, and potential preventive measures employers may wish to take to avoid a lawsuit or to mitigate possible damages arising from a lawsuit.
History of Class Actions under the KWHA
For years, the KWHA has provided remedies for individuals who can demonstrate minimum wage, overtime or other wage and hour violations. Prior to 2005, however, individuals seeking to bring a claim under the KWHA were not permitted to directly pursue a claim in court. While various plaintiff’s attorneys filed class actions after 2005, the plain language of the Act remained unaddressed for several years.
KRS 337.385(2) of the Act provides that an action to address unpaid wage violations “may be maintained in any court of competent jurisdiction by any one (1) or more employees for and in behalf of himself, herself, or themselves.” A purely grammatical reading of this language requires such action be brought individually, not on a class basis. While multiple individuals can join in the same action, the language seemingly precluded a class representative from pursuing an action on behalf of similarly situated individuals.
When Kentucky courts finally had the chance to address the plain language, both they and their federal counterparts in Kentucky originally concluded that the plain language of the KWHA prevented plaintiffs from utilizing the class action device. See e.g., Toyota Motor Mfg. Kentucky, Inc. v. Kelley, 2013 WL 6046079 (Ky. App. Nov. 15, 2013); Williams v. King Bee Delivery, LLC, 199 F.Supp.3d 1175 (E.D. Ky. 2016). The Kentucky Supreme Court, however, finally took the opportunity to consider the issue in McCann v. Sullivan Univ Sys., 528 S.W.3d 331 (Ky. 2017). In that case, the Kentucky Supreme Court concluded once and for all that class actions can be brought under the KWHA.
Difference in Procedure and Remedies Between the FLSA and the KWHA
With the Kentucky Supreme Court’s decision in McCann, Kentucky joins approximately half of the other U.S. states in specifically permitting wage and hour class actions under applicable state law. In class actions, an individual who otherwise would be part of the class must affirmatively “opt out” from the litigation. By contrast, the federal FLSA provides only for an “opt in” mechanism. This means that to participate in a federal collective action, an individual who would otherwise be part of the class must affirmatively “opt in” to the litigation, typically by signing a written consent form. Historically, potential members of a collective action “opt in” at fairly low rates, often no higher than 15 percent to 20 percent. As such, the potential recovery in a federal FLSA case would typically be only about a fifth as much as a case under the law of many states.
The KWHA, however, provides the potential for even greater recovery, because it contains a five-year limitations period on damages. This is far greater than the limitations period of most states, as well as that of the FLSA, which permits a maximum recovery of three years. The combination of the class “opt out” mechanism and the five-year limitations period allows for claims under the KWHA to be potentially 10 times more profitable for plaintiff’s attorneys as compared to those under the FLSA.
Employer Efforts to Avoid a Potential Lawsuit
So what can employers do to avoid potentially calamitous results? Savvy employers will consider solutions on the front end, prior to any litigation. A wage and hour audit can help uncover vulnerabilities that might prevent a subsequent lawsuit from being successful, or at least could potentially assist in limiting damages.
For example, an audit can assess whether a certain large group of similar employees are appropriately classified as exempt from the overtime requirements of both the FLSA and the KWHA. It is a common mistake for employers to classify their employees as exempt and thus fail to compensate them for hours worked beyond 40 in a workweek, when, in fact, the employees’ work duties should render them non-exempt and overtime eligible.
Audits also can reveal other potential concerns, such as pre-shift work, bonus calculations, recordkeeping, timekeeping policies and procedures and leave and time-off policies. Working with experienced counsel during an audit can assist in uncovering errors in employee compensation and provide solutions on a going-forward basis, before a plaintiff’s attorney brings a lawsuit.
If a plaintiff’s attorney does subsequently bring a lawsuit based on any of the above or other issues that may be identified during an audit, implementing remedies to such problems could reduce the employer’s ultimate damage exposure. Even if an audit uncovers no major issues, it provides peace of mind in what is now a very challenging time for Kentucky employers.
Timothy Weatherholt is a partner in the Louisville office of Fisher Phillips. He can be reached at 502.561.3990 or firstname.lastname@example.org.