NEW YORK (TheStreet) -- Yesterday the United States Department of Labor announced that professional networking Web site LinkedIn (LNKD - Get Report) had agreed to pay nearly $6 million in unpaid wages and damages to 359 former and current employees. LinkedIn paid $3.3 million in overtime pay and $2.5 million in damages.
When LinkedIn was notified of the violations, it agreed to pay all overtime back pay due and take steps to correct its processes, the Labor Department stated.
LinkedIn was caught using a practice very common in Silicon Valley and across the U.S, especially in social media and start-up companies -- off-the-clock work.
"This company has shown a great deal of integrity by fully cooperating with investigators and stepping up to the plate without hesitation to help make workers whole," said Dr. David Weil, administrator of the Wage and Hour Division at the Labor Department. "We are particularly pleased that LinkedIn also has committed to take positive and practical steps towards securing future compliance."
An investigation by the Department of Labor found LinkedIn was in violation of overtime and record-keeping provisions of federal law.
The Fair Labor Standards Act requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus a higher wage of time-and-one-half their regular hourly rates for hours worked beyond 40 per week. The FLSA provides that employers who violate the law are, as a general rule, liable to employees for their back wages and an equal amount in liquidated damages. Liquidated damages are paid directly to the affected employees. Additionally, the law requires employers to maintain accurate time and payroll records, and it prohibits retaliation against employees who exercise their rights under the law.
With $1.5 billion in revenue and 5,700 employees at LinkedIn, the amounts being dealt with were small. The interesting part of this story is that the employees involved were commissioned salespeople. This news could portend more focus from the Labor Department on other social media companies that have their own commissioned sales forces.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates LINKEDIN CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate LINKEDIN CORP (LNKD) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 11.5%. Since the same quarter one year prior, revenues rose by 46.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- LNKD has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.69, which clearly demonstrates the ability to cover short-term cash needs.
- Net operating cash flow has slightly increased to $128.44 million or 3.43% when compared to the same quarter last year. Despite an increase in cash flow, LINKEDIN CORP's cash flow growth rate is still lower than the industry average growth rate of 17.70%.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 127.7% when compared to the same quarter one year ago, falling from $3.73 million to -$1.03 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, LINKEDIN CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: LNKD Ratings Report