Minimum Wage

When an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages. Many states have a higher minimum wage, which must be followed by local governmental agencies.

Congress created the national minimum wage under the Fair Labor Standards Act in 1938. The act was a comprehensive federal scheme that provided for minimum wages, overtime pay, record keeping requirements and child labor regulations. The purpose of the minimum wage was to stabilize the post-depression economy and protect the workers in the labor force. The minimum wage was designed to create a minimum standard of living to protect the health and well-being of employees.

Others have argued that the primary purpose was to aid the lowest paid of the nation's working population, those who lacked sufficient bargaining power to secure for themselves a minimum subsistence wage. The act specifically provides for a minimum wage for full- and part-time, public- and private-sector workers — specifically, workers who are engaged in or are in the production of goods for interstate and foreign commerce.

The act applies only to employees. To determine whether an individual is an employee under the act, courts usually focus on the economic reality of the relationship. The important issue is whether the individual is “economically dependent” on the business to which he or she renders service. Courts also look at a variety of factors that are similar to those used in the common law tort context to differentiate employees from independent contractors (e.g., the degree of control the alleged employer has over the way in which the work is performed).

Congress exempted certain employees from the minimum wage provisions, including executives, administrators, professionals and outside salespersons. It is likely that Congress believed these employees had a higher level of bargaining power. Other exceptions apply under specific circumstances to workers with disabilities or full-time students.

The act authorizes the secretary of labor to use several methods to evaluate an employer's conduct and enforce the minimum wage requirement. Congress created the Wage and Hour Division in the Labor Department to allow the wage-hour administrator and the secretary to investigate and detect violations. The division may compel the attendance of witnesses at hearings. It also may require an employer to make records available to the wage-hour administrator. Additionally, the secretary may sue to restrain violations and to some extent recover unpaid benefits on behalf of employees.

Damages for employees for violations can be significant. The act affords a private right of action for employees to recover unpaid minimum wages. In fact, an employee may bring a claim on the employee's own behalf and on behalf of any “similarly situated” employees.

The act has both civil and criminal components. It provides for criminal penalties and fines of up to $11,000 for willful violations of the statute. Furthermore, an individual can be held personally liable for civil damages if he or she effectively controls an employer and/or serves as an alter ego of it. The civil remedies may include all unpaid compensation, mandatory liquidated damages equal to the amount of the unpaid compensation, reinstatement and attorneys' fees.

The content on this page was developed in partnership with the Legal Information Institute, Cornell Law School.