“The dog ate my homework” is a common refrain of school children throughout the ages. Well, there is an adult version of that scenario, such as in this case, where an employer tries to blame its payroll company for overtime damages it incurred and the $614,000 it took to settle the case. The case is entitled Earthmed LLC v. Berlin Stricker & Associates Ltd., and was filed in the Circuit Court of Cook County, Illinois.
The company operates cannabis dispensaries; it filed a negligence suit charging that its payroll company asserted it could do proper payroll for a company with its number of employees, but could not, leading to a successful lawsuit by a former employee. The Complaint urges that “Berlin owed Earthmed a duty of care to ensure that its payroll processing software, Payroll Services Plus Inc., completely and accurately processed payroll in accordance with state and federal requirements.” The action, filed as a class action, settled in June 2022 for more than $600,000.
The owners claimed that did not even know of the FLSA requirement to pay overtime until their company was served with the Complaint. They assert that they inquired of the payroll company in 2018 regarding the need to pay overtime. They claim that “Berlin informed Koukoutsakis and Perez that there were no specific rules regarding overtime pay” and that “they also informed Perez that they were exempt from overtime requirements.”
It was only after the action was commenced that Earthmed advised the payroll company that the payroll processing had to account for overtime wages. Even then, the Company charges that “Berlin’s method of calculating and paying overtime resulted in employees being paid incorrectly for overtime hours worked.”
The Company claims losses of $221,000 in overtime “damages” as well as almost $400,000 in attorney fees it had to shell out. The Complaint sets out a theory of detrimental reliance by asserting that “Earthmed relied on Berlin’s statements in the belief that those statements were accurate. Berlin made these representations to Earthmed in order to induce Perez and Koukoutsakis to use and continue utilizing Berlin Stricker’s service.”
The Takeaway
The employer’s defense is it did not know overtime was due to non-exempt employees and blames the payroll company. I can understand an employer not being sure of who is/is not exempt and whether certain classifications should receive overtime. But, to put all your eggs in the basket of ignorance of basic overtime/wage payment law? That seems to be quite a different story. The employer has a basic, fundamental responsibility to have a primary understanding of these legal obligations.
It is that simple…
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