Interesting Article on the Fair Labor Standards Act
Proofs:
An employer will be held to "know" what it "could have found out" if it had paid attention to what its employees were doing. The legal standard is whether an employer could have learned of the handler's activities by making reasonably diligent inquiries. According to the courts, it is a "rare" case in which an employer will be found to lack the requisite knowledge when the activities in question are "part and parcel" of an employee's job, unless the employee has deliberately hidden the fact that s/he is performing them.
It is up to the employer to control the work of its employees, and to maintain records of the time spent by employees performing compensable activities. If an employer does not maintain the required records, the employee is entitled to recover based on good faith, reasonable and realistic estimates.
Liquidated Damages:
The FLSA provides that a successful employee is usually entitled to double the amount of unpaid back wages, called "liquidated damages." Essentially, liquidated damages are in lieu of interest. An employer can avoid paying liquidated damages only if it shows that it acted in good faith in failing to pay for off the clock work, and that it had a reasonable basis to believe that it need not pay for off the clock work. "Good faith" has a special meaning under the FLSA, and requires that employers have made specific investigation of the application of the FLSA to particular types of employees. Liquidated damages are the rule, not the exception. Employees are normally entitled to liquidated damages.
The FLSA provides that employers violating the overtime payment provision of 29 U.S.C. § 207 are liable for liquidated damages equal to the amount of compensatory damages. 29 U.S.C. § 216(b). “The liquidated damages provision amounts to a Congressional recognition that failure to pay the statutory minimum and overtime wages may be so detrimental to the maintenance of the minimum standard of living ‘necessary for health, efficiency and general well-being of workers' that double payment must be made to compensate employees for losses they might suffer by not receiving their lawful pay when it was due.” Brooks v. Village of Ridgefield Park, 185 F.3d 130, 137 (3d Cir.1999) (footnote omitted). The award of liquidated damages, however, is not always automatic: “if the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the Fair Labor Standards Act of 1938, as amended, the court may, in its sound discretion, award no liquidated damages or award any amount thereof” subject to the applicable statutory limit on liquidated damages. 29 U.S.C. § 260. In order for this Court to exercise its discretion to deny punitive damages, however, a defendant bears the burden of demonstrating that it acted in subjective good faith on objectively reasonable grounds before denying liquidated damages. Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 907-08 (3d Cir.1991). A district court must make findings prior to exercising its discretion on liquidated damages. Martin, 940 F.2d at 907.
Recordkeeping, Reporting, Notices and Posters:
Notices and Posters
Every employer of employees subject to the FLSA’s minimum wage provisions must post, and keep posted, a notice(http://www.dol.gov/whd/regs/compliance/posters/flsa.htm) explaining the Act in a conspicuous place in all of their establishments. Although there is no size requirement for the poster, employees must be able to readily read it. The FLSA poster is also available in Spanish(http://www.dol.gov/whd/regs/compliance/posters/flsaspan.htm), Chinese(http://www.dol.gov/whd/regs/compliance/posters/minwagecn.pdf), Russian(http://www.dol.gov/whd/regs/compliance/posters/FLSAPosterRuss.pdf), Thai,(http://www.dol.gov/whd/regs/compliance/posters/MinWageThai.pdf)Hmong,(http://www.dol.gov/whd/regs/compliance/posters/MinWageHmong.pdf)Vietnamese(http://www.dol.gov/whd/regs/compliance/posters/minwageViet.pdf), and Korean(http://www.dol.gov/whd/regs/compliance/posters/minwageKorean.pdf). There is no requirement to post the poster in languages other than English(http://www.dol.gov/whd/regs/compliance/posters/flsa.htm).
Covered employers are required to post the general Fair Labor Standards Act poster; however, certain industries have posters designed specifically for them. Employers of Agricultural Employees (PDF)(http://www.dol.gov/whd/regs/compliance/posters/wh1386Agrcltr.pdf) and State & Local Government Employees (PDF)(http://www.dol.gov/whd/regs/compliance/posters/wh1385State.pdf) can either post the general Fair Labor Standards Act poster(http://www.dol.gov/whd/regs/compliance/posters/flsa.htm) or their specific industry poster. There are also posters for American Samoa (PDF)(http://www.dol.gov/whd/minwage/americanSamoa/ASminwagePoster.pdf) and Northern Mariana Islands (PDF)(http://www.dol.gov/whd/regs/compliance/posters/cnmi.pdf).
Every employer covered by the FLSA must keep certain records for each covered(http://www.dol.gov/elaws/esa/flsa/overtime/glossary.htm?wd=covered), nonexempt (http://www.dol.gov/elaws/esa/flsa/overtime/glossary.htm?wd=non_exempt)worker. Employers must keep records on wages, hours, and other information as set forth in the Department of Labor's regulations. Most of this data is the type that employers generally maintain in ordinary business practice.
There is no required form for the records. However, the records must include accurate information about the employee and data about the hours worked and the wages earned. The following is a listing of the basic payroll records that an employer must maintain:
Employee's full name, as used for Social Security purposes, and on the same record, the employee's identifying symbol or number if such is used in place of name on any time, work, or payroll records
Address, including zip code
Birth date, if younger than 19
Sex and occupation
Time and day of week when employee's workweek begins
Hours worked each day and total hours worked each workweek
Basis on which employee's wages are paid (e.g., "$9 per hour", "$440 a week", "piecework")
Regular hourly pay rate
Total daily or weekly straight-time earnings
Total overtime earnings for the workweek
All additions to or deductions from the employee's wages
Total wages paid each pay period
Date of payment and the pay period covered by the payment
Limitations on Actions:
The FLSA normally permits recovery for work performed beginning two years before a complaint is filed in court (and continuing "forward" until the case is resolved). Recovery for this period is essentially on a "no fault" basis. An additional year's recovery period is permitted if the employer "knew" that its employment and pay practices violated the FLSA, but "disregarded" these obligations. "Third year" cases are rare, but not unheard of. Nothing but the filing of a legal complaint in court "stops the clock." (A complaint to the employer, or the Department of Labor, does not "toll" the FLSA statute of limitations.)
Two-Year Period
Under the Fair Labor Standards Act (FLSA), you or the U.S. Secretary of Labor, acting on your behalf, must commence (begin) a lawsuit within two years from the date that your employer:
Failed to pay you minimum wages or overtime or violated other provisions of the FLSA
Retaliated or discriminated against you for asserting your rights under the FLSA
The retaliation or discrimination can be in the form of unauthorized withholding of wages, demotion or transfer to a lower paying job or termination.
The two-year limitations period applies to:
Private lawsuits
Complaints filed by the Secretary of Labor on behalf of specific employees named in the complaint
A legal action also starts when an employee who is not listed in the original complaint later adds his or her name to the complaint in either a private action or an action commenced by the Secretary.
Three-Year Period
The FLSA permits the extension of the statute of limitations period to three years if an employer's violation is willful.
An FLSA violation is considered to be willful if the employer:
Knew that its conduct was prohibited by the FLSA
Showed reckless disregard as to whether its conduct was prohibited by the FLSA
Disregarded the possibility that it was violating the FLSA
Had prior FLSA violations and evidence of the employer's recklessness is shown
A finding of willfulness not only extends the limitations period for filing an FLSA claim, it also permits the recovery of three years of back wages from the time of filing the lawsuit and may entitle the employee to liquidated damages, which is an additional award of damages provided by the terms of the FLSA.
Wage claims under the FLSA can be complicated, so an employment law attorney can best help you in determining the remedies available to you under the FLSA.
Top Five Employer Mistakes Under the FLSA
Some of the most common FLSA mistakes made by employers are easily identified and remedied. Whether you have five or five thousand employees, here are five mistakes you should try to avoid.
Common Mistakes:
1. Believing salaried employees are automatically exempt from overtime Just because you are paying an employee a salary, no matter how large, does not mean that he or she is exempt from overtime. Each individual employee must qualify for one of the specific exemptions provided by the statute. Other less common exemptions include the executive exemption, administrative exemption, professional exemption, computer-employee exemption and outside sales exemption.
Each exemption has specific tests, and each employee to whom you pay a salary must be evaluated to see whether the exemption applies. Don’t forget that job titles and job descriptions aren’t the determining factor any more than paying a salary is—just because you call someone a manager or an assistant manager and pay them a salary does not mean they qualify for the exemption. The courts and Department of Labor construe all of the exemptions narrowly, and the burden of proof always remains with the employer.
2. Misclassifying assistant managers Many businesses pay a salary to their assistant-manager-level employees without paying them overtime and without considering whether they truly qualify for the executive exemption. In order to qualify for the executive exemption, an assistant manager must be paid on a salary basis at a rate of at least $455 per week. In addition, the employee must meet each of the following three tests: 1) primary duty is management of the enterprise or of a customarily recognized department or subdivision; 2) customarily and regularly direct the work of two or more other full-time employees or the equivalent; and 3) have the authority to hire or fire, or make suggestions and recommendations as to hiring, firing, advancing, promotions or other status changes that are given particular weight.
For example, if you have a store that regularly has a manager, assistant manager and a few hourly employees on duty, it is unlikely that both the manager and assistant manager will qualify for the exemption. With respect to hiring and firing decisions or recommendations, if assistant managers have that authority it should be included in their job descriptions in an effort to prevent later disputes over the exemption. Although many assistant managers will qualify for the exemption, many others will not, and each employee must be reviewed on an individual basis.
3. Automatic deductions for meal breaks Many employers automatically dock their hourly employees for a 30- or 60-minute meal break each day. Although this is not illegal, it is a frequent subject of litigation and liability. If you are sued by an employee or audited by the Department of Labor, it is your burden to prove the hours actually worked by your hourly employees. If employees later claim that they worked through lunch most days, it will be extremely difficult for you to prove that each of your employees actually took a full lunch break each and every day for which an automatic meal break deduction is made. These automatic deduction cases usually become collective actions and can become very expensive for employers who have such a policy.
Fortunately, there is an easy solution: require your hourly employees to clock out and in for their meal breaks. It is imperative that during this meal break the employee is completely relieved from duty and is not performing any work whatsoever, but it is not necessary that employees be allowed to leave the company premises during the meal break. In order to discourage workers from working through this meal break in order to get extra pay each day, make it mandatory that the meal breaks are taken each day, and discipline employees who refuse to take the meal break. Additionally, if for some reason an employee works through a meal break one day, that employee can be sent home early on another day in the same pay week so that overtime does not kick in for that week.
4. Not paying for overtime that has not been approved in advance Many companies have a policy requiring employees to seek approval in advance before working overtime. The problem arises when an employer refuses to pay an employee for non-approved overtime. The FLSA, unfortunately, does not distinguish between approved and non-approved overtime—if the employee works the overtime, you are required to pay time and one-half the regular rate for that overtime. But the company is not without recourse: An employee who violates a company policy by working non-approved overtime can be disciplined or terminated for that violation of policy.
5. Allowing employees to "waive" their right to overtime Another common mistake, particularly among small businesses, is believing that an employee can waive his or her right to time and one-half pay for all overtime hours. What frequently happens is that an employee requests extra hours and agrees that he needs only to receive his regular pay for those hours. Sometimes this request is made out of a belief that other employees might be hired and everyone’s hours will be cut, or sometimes out of an employee’s particular need for some extra money.
Despite your good intentions, any type of deal with an employee that results in the nonpayment of overtime is void and will not be a defense if the employee later files suit. A related problem sometimes arises when employees are paid out of two different locations or two companies owned by the same person. By way of example, an employer might own two ice cream stores, each of which is separately incorporated. If an employee works at both stores during a workweek for a combined total of more than 40 hours, that employee must be paid time and one-half for all hours beyond 40.
The individual owner of stores cannot circumvent the overtime requirement (whether intentionally or otherwise) by paying an employee out of different stores or corporations. Not only will the courts or the Department of Labor likely find the companies liable under a joint or single employer theory, but the individual will also be liable as well.
The bottom line Compliance with the FLSA is a task you must take seriously. The number of lawsuits involving these claims is growing at an alarming rate, and the effects can be devastating for businesses of all sizes. Because the FLSA has a penalty provision that allows plaintiffs in some circumstances to recover twice their actual back wages, and because it automatically entitles prevailing plaintiffs to their attorneys’ fees, even a minor violation can wind up being very expensive. And many of these cases become collective actions, where the plaintiff invites all other similarly situated employees to join the litigation.
Issues in Defending FLSA Cases:
An Overview
The payment of overtime compensation to employees is a longstanding obligation of employers. This article examines issues related to the defense of overtime claims under federal law. Missouri law also requires overtime compensation but generally references and tracks federal law.2
The Fair Labor Standards Act (FLSA) was first enacted into law as part of the New Deal in the late 1930s at the tail end of the Great Depression. Its stated purpose was to eliminate “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers . . . .”3 FLSA’s primary focus was to ensure that employees received two things: (1) a minimum wage, fixed at $7.25 per hour as of July 25, 2009,4 and (2) overtime compensation for all hours in a work week in excess of 40 to be paid at the rate of one and one-half times the employee’s regular rate.5 The minimum wage requirements are rather straightforward, at least insofar as one can readily read the current version of FLSA to determine the current minimum hourly wage and, therefore, ascertain any violation. In any event, issues regarding payment of a minimum wage are beyond the scope of this article.
There are also a number of exemptions from FLSA’s minimum wage and overtime requirements, including such categories as executive, administrative and professional employees, as well as a number of specific exemptions. Again, exemption issues are beyond the scope of this article.6
Here, we will focus our attention on the overtime requirements of FLSA and the somewhat lesser known but problematic areas to which employers should pay particular attention if they hope to avoid or minimize overtime claims. For our purposes, we will assume that the employee is generally subject to FLSA’s overtime requirements.
II. Who Is the “Employer?”
Generally speaking, the FLSA requirements, whether related to overtime or minimum wage compensation, apply only to statutorily defined “employers” and “employees.” Specifically, to be covered, an employee must be engaged in or “employed in an enterprise engaged in commerce or in the production of goods for commerce.”7 This is further defined as an enterprise that engages in commerce “among the several States or between any State and any place outside thereof” and which has an “annual gross volume of sales made or business done” of at least $500,000.8 From a practical standpoint, this would include nearly every business except the genuine “mom and pop” operation. Any employer considering the possibility of an argument that, notwithstanding annual sales in excess of $500,000, the business is so local as to have no connection with interstate commerce, should be advised of the futility of that endeavor. The courts have uniformly held that only slight activity in interstate commerce is required. For example, a business was deemed covered where the interstate commerce activities of the employee in question amounted to a mere five percent of the employee’s total work time.9
One of the first areas of inquiry by plaintiff’s counsel in preparing an overtime claim complaint and, therefore, worthwhile for examination by defendant’s counsel, should be the possibility of establishing individual liability for owners, officers, supervisors and/or managers of the business. The traditional concept of limited liability achieved by doing business in an approved form of business entity will not insulate some individuals associated with the business entity from liability under FLSA. In most circumstances, particularly where the employer meets the size requirements of FLSA, the business in question will be operated in one form or the other of some statutorily created business entity, usually a corporation or a limited liability company. Clearly, the business entity – the name of which is usually on the employee’s payroll check – qualifies as an employer under FLSA and will be liable for any proven overtime claim. But, individual owners, officers, supervisors and/or managers of the business will likely face liability as well.
The definition of “employer” under FLSA is expansive. An “employer” is any person (elsewhere defined in FLSA to include individuals as well as business entities) “acting directly or indirectly in the interest of an employer in relation to an employee . . . .”10 As interpreted by the courts, an “employer” will include individuals who fall into one or both of the following two categories: (1) a supervisory employee who has direct supervision and/or control over decisions affecting the employee’s payroll and employment status and/or (2) an individual supervisor, officer or manager who has day-to-day control over the business entity as a whole. Thus, it can be seen that, under the first category, a supervisory employee of the business entity who makes direct decisions with regard to the payment (or not) of overtime compensation and/or payroll decisions generally with regard to employees may incur individual liability. Liability has been found, for example, where the individual defendant had the authority to hire and discharge an employee,11 had budgetary authority,12 had significant control over day-to-day activities including determination of salaries (even though others calculated hours and handled day-to-day problems),13 and exercised operational management over others who directly controlled employees.14 On the other hand, individual liability was avoided where the target individual gave only occasional and intermittent instructions to workers who were controlled by others15 or, as a majority stockholder of the corporate employer, was not necessarily liable absent specific facts evidencing operational control.16 The inquiry as to whether or not any individual employee of the business entity will incur personal liability under this category is rather straightforward. A factual inquiry will demonstrate whether the supervisory employee in question has sufficient control over the employee’s status such that the supervisor falls within or without the definition of “employer.”
The analysis of whether or not a supervisory employee incurs individual liability as an employer under the second category is less straightforward. For example, every corporation has its president and/or chief executive officer who, in common parlance, sits at the head of the table. Where such a person has actual control over significant business functions, determines salaries and makes hiring and discharge decisions, and, at least ostensibly, has ultimate control over all decisions made by lesser supervisory personnel, that person has “operational control” and, therefore, potential liability as an “employer.”17 The test is whether or not, in our example, this president or CEO has day-to-day control over the operation of the business. Depending upon management style and the size and management structure of the business entity, an individual defendant may well be able to defend against individual liability as an employer under FLSA on the grounds that the named individual defendant does not have day-to-day control over the operation of the entire business.
Suppose, for example, the business manufactures widgets. As part of the corporate structure, the business has a multi-person management team, each of whom take individual responsibility and supervise, on a day-to-day basis, the operations of their particular areas. Perhaps the widgets are manufactured in bulk in China, shipped to the United States, where they are assembled and packaged by local employees, and then shipped around the country to various retail outlets. Suppose further that the corporation maintains a separate production manager who spends a considerable amount of time in China supervising the manufacture of the widgets, has another manager who supervises the assembly and shipping of the widgets here in the United States, has yet another manager whose exclusive duties are marketing and sales of the widgets to U.S. retailers and, of course, has another manager who is the human resource director supervising the local employees from a personnel standpoint. If the president of the corporation spends substantially all of his or her time devoted to supervising the production of the widgets in China and developing sales relationships to major retailers in the United States, it could reasonably be argued that the president does not have day-to-day control over the entire operation of the business, leaving certain areas such as local production and shipping, as well as employee relations (significant under FLSA), to others. Whether or not this strategy will succeed depends largely on the facts at the disposal of the defendant. To the extent an individual defendant can marshal facts demonstrating that he or she does not have day-to-day control over the entire operation of the business and does not make personnel decisions, the chances of success on this issue increase.
III. The Possible Consequences of Failing to Maintain Records
One question routinely addressed in almost every overtime claim is the number of hours of overtime the employee actually worked for which the employer failed to pay. Often, one may see an allegation in an overtime complaint that the employer has not kept written records of the time spent by the plaintiff/employee that would document the actual hours worked. This is most likely an attempt to ease plaintiff’s burden of proof. It is not unheard of for some plaintiff’s lawyers to send the employer a pre-suit letter threatening litigation and demanding the employer immediately deliver copies of all work records of the employee. If the employer does not promptly comply, the later filed complaint will contain an allegation that no such records exist. This omission leaves a path open for the employee’s spotty records or, even worse, the employee’s often vague recollection delivered as testimony at trial, to be the sole proof of overtime hours worked. It would not be advisable for any employer to respond to any such demand without the assistance of experienced labor and employment counsel.
But, such a demand letter should not be ignored. First, counsel would be well advised to train their business clients to at least recognize the danger of responding on their own. Second, the most astute response by counsel to such a letter would be a polite but firm refusal to provide documents at that time, a denial of any claim of liability if a preliminary review of the facts warrants such a conclusion, and, in an effort to turn the tables, a polite invitation that plaintiff first provide the details of any claimed overtime violation together with an offer to discuss (pre-litigation) any dispute. If it accomplishes nothing else, that type of letter would likely blunt the inevitable claim for attorneys’ fees.
In today’s rather well-organized business environment, it seems unlikely that any business of size would not keep some records to document the hours worked by each of its employees. Yet, the allegation of “no records” is made in the hope that the employer either did not keep adequate records initially or, what is more likely, that the employer has not maintained these records over time sufficient to demonstrate the actual hours worked by an employee. There is case law supporting the proposition that, where the employer has failed to maintain adequate records, an employee’s written records or, in the absence of employee records, the employee’s testimony in the form of his or her recollection of overtime hours worked, will be admissible in a FLSA overtime action, over an objection that a recollection is too speculative.18 Understandably, these types of employee records can be very dangerous at trial to an employer where the employer does not have adequate documentation to demonstrate the actual hours worked. In today’s technologically sophisticated environment, a card-swiped time clock sending data to a computer hard drive is a good choice. Information storage is inexpensive and readily available if needed. It is advisable that every employer keep employee records for at least three years.19
IV. Calculating or Miscalculating an Employee’s “Regular Rate”
When evaluating any overtime claim under FLSA, the employer must ascertain whether or not it has accurately calculated the employee’s regular rate as defined in FLSA. This is necessary because, under the overtime provisions, an employee who is entitled to overtime compensation must be paid at the rate of one and one-half times his or her regular rate for all hours worked in excess of 40 each pay week.20 FLSA initially defines “regular rate” expansively “to include all remuneration for employment paid to, or on behalf of, the employee . . . .”21
Without giving it much thought, most employers will calculate an employee’s regular rate simply by applying the employee’s normal hourly rate. But, as can be seen from the definition of “regular rate,” the calculation of that rate must include all compensation from any source and, necessarily, not just the dollars received at the end of each pay week. Employers often provide other forms of compensation to an employee which, if paid in consideration for work performed, may be includable in the employee’s regular rate and thus properly part of the calculation of overtime. It is conceivable that, where other compensation is offered by the employer for work performed and that compensation is not factored into the calculation of the regular rate, there will be a shortage in the payment of overtime compensation. The impact of this kind of miscalculation and resulting shortage can be seen in two ways. First, even a small miscalculation on a weekly basis going back two or three years (depending on the applicable statute of limitations) can add up. Second, an otherwise non-existent overtime claim may blossom into a viable claim and, with that claim, will follow the usually much more considerable claim for attorneys’ fees.22
V. No Good Deed Goes Unpunished
FLSA, and particularly the regulations promulgated thereunder, provide for certain exemptions from the regular rate calculation. These exemptions include such items as bonuses and special gifts. Bonuses are a normal practice of many businesses, often given at stated times during the year, in many cases at the end of year. Bonuses are excluded from the calculation of a regular rate so long as they are discretionary. Under FLSA regulations, a bonus is considered discretionary if the employer retains the “discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid.”23 Thus, if a bonus of some amount is negotiated with the employee as part of his or her compensation package, even though the employer may retain the discretion as to the actual amount, the bonus is not completely discretionary and must be factored into the regular rate calculation. Additionally, because the decision to make a bonus payment must be left until the end of the period for which the bonus is paid (presumably the end of the year), if the employer announces in June that he will be paying a bonus at the end of the year, the employer has now partially abandoned its discretion and the bonus is considered a part of the employee’s compensation and must be factored into the regular rate calculation. It is easy to see that in cases such as this, a generous and well-meaning employer can end up altering the employee’s regular rate unknowingly, which will have the effect of increasing the employee’s overtime calculation.
The employer’s retention of its discretion over all aspects of bonus payments is key. A negotiated bonus payment will have adverse consequences in an overtime claim. As another example, if the employer announces to its sales employees that they will be paid a bonus based upon a percentage increase in their sales, the employer will have likewise abandoned its discretion and rendered those bonus payments a necessary component of the regular rate calculation. And, as we will see below with regard to gifts, a bonus that depends on a level of production for its existence or size will be an additional ground for including its value in the overtime calculation.
Often an employer, wishing to show gratitude for faithful employees, provides gifts at Christmas time or on other occasions to its employees as a “thank you” for work performed. Again, there is a trap here for the unwary employer. If the gift is measured or contingent upon “hours worked, production, or efficiency,” FLSA regulations provide that this is no longer a gift and must be included in the regular rate calculation.24 While the gift or value of the gift may vary among the employees according to their salaries, their regular rates or their length of service to the employer and so avoid any effect on the regular rate, if the gift is measured by employee hours worked, a level of production or efficiency, a seed of trouble will have been planted. To illustrate this potential problem, suppose an employee is paid at the rate of $10 dollars per hour, works 40 hours each of 26 weeks and 50 hours in each of the 26 other weeks (for which 260 overtime hours the employee is paid at the overtime hourly rate of $15). The employee’s regular rate is calculated thus: $10 (base hourly rate) x 40 hours x 52 weeks = $20,800 ÷ 2,080 hours worked = $10 regular rate. Simple enough.
Now consider this alternative scenario. If, based on achieving a pre-determined level of production, the employee is given a year-end, non-discretionary bonus or a gift valued at $500, the calculation changes. Under this scenario the calculation is $10 (base hourly rate) x 40 hours x 52 weeks = $20,800 + $500 (gift) = $21,300 ÷ 2080 hours worked = $10.24 regular rate. Under this calculation, the 260 hours of overtime (which should have been paid at the overtime hourly rate of $15.36) would have been underpaid by a total of a mere $93.60, thus subjecting the employer to a FLSA overtime claim for $93.60 in damages, plus FLSA liquidated damages of $93.60,25 and the more substantial claim for attorneys’ fees. Obviously, the amount of the damages increases as the actual overtime hours increase during the year.
VI. Give Me a Break
A final area of concern for many employers is the issue of meal time or other breaks during the work day. By regulation, employees are entitled to a minimum period of time for their meals as well as breaks during the workday depending upon the length of the shift the employee is working. A minimum of 30 minutes for a meal break is normally considered sufficient and, as long as the employee is “completely relieved from duty,” it is not compensable and, therefore, not factored into an overtime calculation.26 Some employers provide a location on the work premises for its employees to take their meals (such as a lunchroom) and may also provide either a cafeteria or a facility for employees to prepare their own meal. Employers often view this as a benefit to the company as well as the employee so that, during a relatively short lunch period (for example, 30 minutes), the employee does not have to spend part of their precious meal time traveling to or from a restaurant. However, sometimes this benefit gets turned around to the detriment of the employer. Suppose the employer provides an on-premises lunchroom and, during a 30-minute lunch break, the production manager says to the employees who have finished lunch after 20 minutes, “Let’s get back on the production line and finish up that order we didn’t finish this morning.” Under this scenario, the employer (through its production manager) has now commanded the employees to work during a small portion of their lunch break, for which they are not being compensated. If this is more than an isolated incident, those short periods of extra work add up and, more important, the employer runs the very real risk that the entire meal time must be compensated and the extra hours added to the calculation of the employee’s regular rate, thus increasing the overtime calculation.
Non-meal break time is also addressed by FLSA regulations. Unlike meal time, break time of five to 20 minutes each is considered fully compensable and should be added to any overtime calculation.27 If the requisite payment is not made, in addition to the possibility of a claim for unpaid wages under state law, the calculation of the regular rate will have been thrown off and any overtime wages actually paid will likely have been paid at an inadequate rate. Again, this will subject the employer to the full panoply of employee actions under FLSA.
VII. Closing Thoughts
All of the above examples demonstrate that an employer must be constantly alert not only to its normal practices (such as bonuses or gifts), but must also closely watch its mid-level managers to make sure they are not imposing upon an employee’s meal or break time. If such an imposition occurs, it will affect the employee’s regular rate and, thus, any overtime calculation. Remember, while small mistakes in the calculation of a regular rate may have only a relatively small effect on the overtime calculation, the real risk will be felt when the employee’s attorney demands the statutorily authorized award of attorneys’ fees.
In those cases where an overtime claim has been filed, usually in federal court,28 prompt evaluation and consultation with the employer’s top management are advisable. Obtain and evaluate copies of all the relevant employee records. Where individual defendants have been named, one should ascertain their relative authority and control over the business generally and employees in particular. Interview all supervisory personnel who have had more than isolated contact with the plaintiff employee. Where viable defenses appear available, assert them early and thoroughly. Most plaintiff’s counsel in a FLSA action will have a contingency fee agreement with the plaintiff employee. Evidence of a strong defense and a defendant/employer willing to go to trial, if necessary, can often bring a welcome and advantageous settlement. If a trial cannot be avoided, remember that juries usually have more employees than employers, but even employee/jurors may look with disfavor on an employee (and maybe the employee’s attorney) who may be trying to take advantage of an employer.
