The Fair Labor Standards Act is Far From Perfect

The Fair Labor Standards Act is Far From Perfect

The overarching federal legislation that employees rely on by setting the minimum wage and the maximum hour requirement for hardworking Americans is known as the Fair Labor Standards Act (FLSA). Since 2009, the federal minimum wage has remained at just $7.25 per hour. Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.

In addition to establishing the minimum wage, the FLSA also regulates overtime pay. Federal law (and often state law) mandates employers to pay their employees one and one-half times the regular rate of pay for any hours worked in excess of 40 hours each workweek.

Though the FLSA is designed to protect workers, it contains certain loopholes, exposing delivery drivers and other gig economy workers to wage theft. For example, the FLSA’s protections only extend to “employees,” but not to “independent contractors.” Consequently, large companies often mislabel employees as independent contractors to avoid fairly compensating them pursuant to the FLSA. Additionally, gig workers are susceptible to “tipped-credit” and reimbursement violations, discussed in turn below.

Misclassification of Employees as “Independent Contractors.”

The FLSA’s minimum wage and overtime provisions only apply to employees. But, even if your employer calls you an independent contract, the FLSA requires factfinders (i.e. judges, juries, and arbitrators) to balance a variety of factors when making this determination, including:

  • The extent to which the services rendered are an integral part of the principal’s business.
  • The permanency of the relationship.
  • The amount of the alleged contractor’s investment in facilities and equipment.
  • The nature and degree of control by the principal.
  • The alleged contractor’s opportunities for profit and loss.
  • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
  • The degree of independent business organization and operation.

When challenged, workers cast as independent contractors are often relabeled as “employees,” and are thus guaranteed minimum wage and overtime pay pursuant to the FLSA.

“Tip Credit” Violations.  

The minimum wage for tipped employees is $2.13, and this is even higher in some states. For a business to pay a tipped employee a cash wage lower than the standard federal minimum wage of $7.25, several qualifications must be met. Common “tipped credit” violations include:

  • Tip credit claimed by the employer exceeds the actual amount of tips received
  • Tips are retained by the employer instead of the employee
  • The inclusion of non-tipped workers in a tip pool
  • Paying an employee a tip wage when over 20 percent of his or her job involves tasks that do not normally receive tips.

If an employer fails to meet just one of these requirements, the employee is entitled to the federal minimum wage, in addition to tips they might receive.

Reimbursement Violations.

Another example of wage theft affecting gig economy workers occurs when companies employ drivers who use their own automobiles to transport or deliver items to customers. In this situation, drivers are not reasonably reimbursed for the approximate costs of the business use of their vehicles. Under the Fair Labor Standards Act and many state laws, if an employee incurs expenses on the employer’s behalf for the convenience of the employer, the employee is entitled to reimbursement to the extent their earnings would otherwise fall below the federal minimum wage. Many companies use a flawed method to determine reimbursement rates that provides such an unreasonably low rate beneath any reasonable approximation of the expenses they incur that the drivers’ unreimbursed expenses cause their wages to fall below the federal minimum wage during some or all workweeks.


For years, businesses have implemented pay schemes to systematically underpay their employees. Thus, if one employee is underpaid, there are likely hundreds, or thousands, similarly situated. When wage theft occurs on a companywide basis, employees can join together and file one lawsuit before one judge to efficiently recoup their lost wages and work-related expenses.

Think you may be a victim of wage theft? Contact us today!

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  1. Pingback: Legal Options For "Gig Workers" During COVID-19 - Forester Haynie

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