Wage Dispute Danger: What Employers Must Keep in Mind

Fri, Apr 18th, 2025 | by Miles Mediation and Arbitration | Article | Social Share

By Steve Dunn

In my 20+ years as a management-side employment lawyer, I used to receive calls about all kinds of workplace situations, but there is one category that still gives me nightmares.

“Hi Steve. Long time, no talk. The reason I’m calling is we have an employee who says we haven’t been paying him correctly.”

My heart starts pounding. I try to conceal the panic in my voice.

“Let me stop you right there. I need you to go ahead and pay the man. I’m on my way over.”

“Did you say, ‘pay him’? The reason I’m calling is because, as we see it — ”

“I said pay him!” I break into a sweat as I stuff a notepad in my briefcase and head to the car. “Give him the cash in your wallet if you have to!”

“But, Steve, even if he is right, he is asking for twice as much as —”

“Then pay him double! I’m at the front door. Buzz me in.”

Am I exaggerating? Sure, but only a little. The truth is wage disputes are among the most dangerous and difficult cases for employers. Here’s why.

Wage-and-hour law is not a level playing field.

In most legal disputes, the law itself is neutral. It establishes standards of compliance, and both sides have a balanced opportunity to make their case. Not so with the wage laws, where responsibility lies almost exclusively with the employer to get every single thing exactly right. Under both state and federal law, important presumptions favor the employee, essentially shifting the burden of proof to the employer to establish it paid correctly. And in some states, including North Carolina, state regulations expressly provide that ambiguities are to be construed against employers and in favor of employees.

Making matters worse for employers, wage laws are notoriously technical, detailed, and counterintuitive. This is especially true under the Fair Labor Standards Act (FLSA), the federal statute which mandates minimum wage and overtime. Even after 20 years of practice, when confronted with all but the simplest FLSA questions, I would always hit the books and dig into the regulations. There is always a wrinkle. Most people know the FLSA requires employees to be paid “time and a half” for hours worked over 40 in a week, but what they may not realize is that entire volumes have been written about what “time and a half” and “week” mean.

While many state laws are comparatively straightforward, essentially requiring employers to pay promised wages and governing items like vacations and final paychecks, this is not true across the board. Some states, like California, have robust requirements that go beyond the FLSA — for example, requiring overtime for working more than eight hours per day in addition to the FLSA threshold of 40 hours in a week. State laws also vary widely in how they regulate vacation time and final paychecks.

So, a patchwork of state and federal laws, with highly technical regulations, that are expressly construed against the employer in favor of the employee. Sounds like fun, right? It gets worse.

There are stiff penalties for non-compliance.

In most legal disputes, the defendant’s exposure is limited to the injured party’s actual damages. Not so in wage cases. Under both state and federal law, wage plaintiffs can recover liquidated damages adding up to two to three times the employee’s actual loss, plus attorneys’ fees. This multiplies the employer’s exposure in every wage dispute, compounding its risk.

But wait. Does this mean a wage plaintiff can recover attorneys’ fees greatly exceeding the amount recovered? Why yes, it does – it happens all the time! It is not unheard of for there to be six-figure attorneys’ fee awards in cases with four-figure judgments.

To be fair, there are good policy reasons justifying what seems on the surface to be disproportionate penalties. Lawmakers recognize we all depend on our wages to put food on the table and pay our bills. Ensuring wages are paid correctly is in society’s interest in addition to each individual’s. The availability of liquidated damages and attorneys’ fees provides a financial incentive for lawyers to take cases that otherwise might be too small to justify the investment and risk. And it counters the incentive an unscrupulous employer might otherwise have to shortchange its lowest paid and most vulnerable employees.

But all the good policy and best intentions of lawmakers are no comfort to an employer who finds itself on the wrong side of a wage claim despite doing its best to comply with an impenetrable mishmash of regulations. Many of my clients over the years were folks who tried to do the right thing and be fair to their employees but relied on outdated “industry standard” pay practices or incorrect interpretations of the law. Is the office manager exempt from overtime? After all, the word “manager” appears in her job title. Not necessarily! Is it okay to treat your workers as 1099 independent contractors because that’s how they like to be paid — and it’s a common practice in your field? Don’t count on it! There are endless opportunities for error in complying with the wage payment laws.

So, employers must contend with an uneven playing field, a complex regulatory landscape, and heavy penalties for making mistakes. What else could go wrong? Plenty!

If you paid anyone wrong, you might have paid everyone wrong.

In deciding how to defend a wage claim, employers (and their counsel) must consider not only the merit of the current dispute, but also how other employees may be affected by a settlement or judgment. For example, if an employee claims she was improperly classified as overtime exempt, the company’s handling of the case may affect every other employee with the same job duties.

Both state and federal law allows employees to join together in class or collective actions to seek relief for unlawful pay practices affecting broad groups of employees. This is where plaintiffs’ employment lawyers make the big money, and where employers face potential judgments in ranges they never thought were possible.

Due to the risk of class-based relief, employers facing an individual wage claim often can’t just “make it go away” by settling out of court. Under Department of Labor regulations, wage settlements often must be approved by a federal judge, with the details disclosed in a public filing. And even in cases the parties could settle privately, employers often feel as though they must dig in their heels and defend their pay practices because, if they are wrong, it could bankrupt the company.

What can employers do to mitigate their risk?

So, you can see why clients calls about wage claims used to give me heart palpitations. Fortunately, it is not all gloom and doom for businesses. There are some basic things employers can to do reduce their risk.

Most important is to conduct regular reviews of employee classifications as exempt or non-exempt. It’s also a good idea to review all employment policies at least every couple of years to keep up with the latest developments. And, of course, keep your lawyer on speed dial. There is no need for employers to lose sleep worrying about wage claims. As lawyers defending them, we never sleep anyway.

*Originally published in the North Carolina Lawyers Weekly and reprinted with permission.

About Steve Dunn

Steve Dunn was a litigator for over 20 years before becoming a full-time mediator in 2019. His law practice focused on business litigation, trade secrets, non-competes, wage disputes, and all forms of employment discrimination. In addition to private companies and educational institutions, Steve represented municipalities and public officials in cases involving the First Amendment, public records, and constitutional torts.