January 9 Tip of the Week

“Lessons from Pepsi Co. and Kronos”

Recently, Pepsi Co. was the subject of a class action lawsuit from employees who claimed that due to a hacking of the Kronos timekeeping system, the employees were not properly paid for all hours worked including overtime.  The plaintiffs allege that, rather than properly accounting for the time worked by employees, Pepsi Co. based their pay after the hacking of the electronic timekeeping system on their work schedules or on the wages they received prior to the hack.  Claiming that these inexact methods of calculating wages owed violated the wage and hour laws, the plaintiffs asserted that Pepsi Co. failed in its duty to properly pay its employees because they could have used a manual method of tracking hours which would have resulted in accurate pay for hours worked.  In an effort to resolve this dispute, Pepsi Co. recently agreed to a more than $12 million settlement with more than 70,000 workers.

Pepsi Co.’s experience in this situation offers several lessons for employers.  First and foremost, employers need to be aware of the expense and difficulty in defending against wage and hour claims.  Both the state and federal laws contain specific requirements as to how hourly employees must be paid.  The law defines hours worked and requires overtime when an employee exceeds a certain number of hours in a day or a work week.  Classifying employees as exempt also requires a clear analysis of the employee’s job duties and responsibilities, annual wages, and method of payment to ensure that the classification is accurate.  A failure to properly classify an employee as exempt or non-exempt can be very costly, as can the failure to properly pay an employee for all time worked including overtime.  Both state and federal agencies are readily available to assist employees in filing unpaid wage claims and it is difficult for employers to defend against these claims if they do not have comprehensive records of the hours worked by employees and the amounts paid to employees. 

Second, when an employer contracts with another company for a service, such as a payroll service, it is very easy for the employer to rely solely on that outside company to ensure compliance with the law and accuracy in pay.  The recent Pepsi case serves as a great reminder that employers cannot simply rely on other companies to carry out their legal obligations and, when something goes wrong with the contracted service, the employer must be ready and able to step in and resume that function.  In Pepsi’s case, had Pepsi used old time clocks or developed a different method of timekeeping to replace the Kronos system while the hack was ongoing, they could have avoided the lawsuit. 

Third, when entering into service agreements, it is important to determine who is responsible for losses when something goes wrong with the service provided.  Selecting a vendor requires a thorough vetting of the companies seeking to provide you with services.  Before entering into an agreement with a vendor, it is important to ensure that they are up to date on all compliance issues, including those that involve cybersecurity.  It is also important to ensure that the contract with the vendor provides regular reporting processes and an ability for you to access information necessary to protect yourself against any claims arising out of the vendor’s services.  Finally, you will want to ensure that there is language in the agreement that addresses liability issues, indemnification, and other protections should problems arise during the relationship with the vendor. 

MyHRcounsel can assist you with all aspects of your labor and employment obligations, from agreements with vendors to ensuring that you are properly paying your employees.  Our team of attorneys is ready and able to help you with your labor and employment issues – big or small.