Fallout of a flimsy case against Wipro

President Obama’s executive action last month raising the overtime salary threshold has emboldened tens of thousands of Indian IT workers in the US to dream even bigger. For optimists, the Oval Office announcement seemed well timed and a response in support of the class action lawsuit filed by a Wipro employee on March 30 alleging that the company failed to pay him overtime.

Before we get into the details of the case, it would be good to step back and look at what the issue really is. Coming out of the Great Depression, the US Congress passed many landmark laws to protect US workers. Focusing first on older Americans, the Social Security Act of 1935 provided benefits to those leaving the workforce, including the retired, disabled and unemployed. Congress then turned its attention to the employed and passed the Fair Labor Standards Act (FLSA) of 1938. This decreed that 40 hours of weekly work constitute “full time employment”.

The FLSA was largely focused on direct labour workers — those whose output varied in direct proportion to a company’s demand. If a company needed to serve more pizzas or make more widgets, it would increase the number of direct labour hours to respond to the additional demand.

The company could either hire more workers to fill the gap or simply ask existing workers to work more. The FLSA was, therefore, the first law to recognise that many workers routinely worked more than 40 hours a week — and it introduced the term “over-time” to force companies to compensate over-timers at a premium for each hour worked beyond 40 hours. If a direct labour worker worked five 11-hour days in a week, he would be entitled to “a time and a half” premium for the 15 extra hours. If the worker was summoned to work on a Sunday for 4 hours when his regular schedule was Monday to Friday, he was entitled to “double” overtime for Sunday work.

For many employees, overtime pay continues to be a route to financial stability. But instances of abuse exist too and these are prevalent in sectors protected by public unions such as government workers. CNBC reported that 13 police officers working at the Port Authority of New York and New Jersey may have earned $300,000 in 2014 — compared to a rookie cop’s salary of $44,000.

A sweeping law such as the FLSA had to contain many exceptions and it did. The most important exception was for salaried employees such as file clerks and managers — indirect labour employees whose work output was unrelated to the company’s product demand.

There also was an income threshold. In 1975, the last time the FLSA was amended, someone making more than $23,700 a year was considered exempt from the law’s protections. President Obama’s proposal last month raised this limit to $50,400 a year and includes a provision to automatically index the threshold to inflation.

Businesses realised that the FLSA could be exploited to classify some workers as managerial simply to get free work. Consider the manager at a US fast food restaurant who performs all the tasks that his subordinates do — including cleaning tables, taking out the trash and keeping restrooms tidy. But by calling such employees managers and paying them the minimum salary as required by law, businesses can claim that these managers are “exempt” from FLSA’s overtime protections.

And now to the Wipro case. Wipro has said in court documents that in 2014, the lowest hourly rate that the litigant earned in California was $34.28 per hour — about $68,000 a year. It is hard to imagine how this employee can demonstrate being under the FLSA which currently has an income threshold of only $23,700.

Which is why the litigant brought the case under California’s labour rules, which are generally more permissive than US Federal law. California defines an exempt employee as someone who is paid a salary that is more than twice the state minimum wage for full-time employment, which in 2015 is $9 an hour — about $36,000.

The litigant made $68,000 — far higher than the state’s minimum threshold. Further, California’s law for software engineers is explicit. As a software engineer, the litigant is considered a professional and deemed exempt from state overtime laws. Period.

A strict reading of the statutes shows that Wipro has nothing to fear from how this case would proceed in the courthouse. But in the court of public opinion, Wipro has much to lose. The litigant’s compensation is clearly lower than what a Bay Area software engineer could demand.

When the court forces the company to publicly reveal compensation details for an entire class of employees, this information will simply add to the current media narrative that Indian majors steal American jobs by replacing them with lowly paid Indian workers. In an election year, this has the potential of hurting not just Wipro but the entire Indian IT export machine.

The writer is managing director, Rao Advisors LLC

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