|
A case involving basic
Fair Labor Standards
Act ("FLSA") violations, such as not paying for
meal breaks worked and
inadequate recordkeeping, typically doesn’t generate too much attention.
However, when the case involves a $14.5 million dollar verdict and
requires back pay to some 1500 employees, employers need to pay attention.
The decision by the Second Circuit Court of Appeals in Reich v.
Southern New England Telecommunications Corporation, Nos. 95-6207(L),
95-6239(CON), 7/31/97, clearly demonstrates the severe consequences that
can result from an employer’s misapplication of the basic principles of
the FLSA. The following discussion of the case presents the problems
employers can have in applying the FLSA and gives practical suggestions
for protecting your organization from a similar verdict.
Get your FREE
access to this and 100's of FREE HR resources today.
The Facts
[Download
Free Policies
Southern New England Telecommunications
Corporation ("SNET") had a policy of not paying for
meal periods taken by
its approximately 1500 "outside craft workers" who were required to remain
at open work sites during their lunch breaks. These employees work
primarily on-site, out-of-doors performing such duties as installing and
replacing telephone poles and cables and cable splicing and repair. SNET
required these employees to spend their lunch break at their work sites to
secure the area and its equipment and to prevent possible harm to the
public. These unpaid lunch periods generally lasted 30 minutes. Employees
who left the work site during the shift without specific permission could
be disciplined. The Department of Labor ("DOL") filed a suit against SNET
on behalf of the 1500 employees, alleging
FLSA violations of overtime and
recordkeeping requirements.
Remaining On-Site Does Not Trigger Pay; Work
Does
The key question in the case against SNET
was whether the meal periods should have been paid time because the
employees were required to remain on-site and had to perform certain
duties during these breaks. To evaluate the claims, the Second Circuit
relied on the DOL’s regulations interpreting what time must be paid as
working time under the FLSA. In particular, 29 C.F.R. §785.19 does not
require employers to pay for "bona fide meal periods," defined as meal
periods when the employee is completely relieved from all work duties
while eating. The meal period still may be unpaid if the employee is
required to remain on the work site, as long as the employee does not have
to work during the period. Accordingly, the fact that the SNET employees
were required to remain on-site during their lunch breaks by itself did
not impose an obligation on SNET to pay for the breaks. Rather, the
determining factor for the court was whether the employees were required
to "work" as defined under the FLSA.
Creating HR Policies or Employee Handbook?
The court applied the "predominant benefit
standard" in its determination that the SNET employees were required to
work during their meal breaks. According to this standard, if the employee
performs activities that are predominantly for the benefit of the employer
during a meal break, the break must be paid. The court rejected SNET’s
argument that the employees’ safety and security roles were "wholly
passive" so that the breaks were predominantly for the benefit of the
employees. The court noted that SNET would have to pay others to perform
the same services and, therefore, was "effectively receiving free labor."
As a result, the time spent during these meal breaks should have been
paid.
Recordkeeping Violations Muddy Payout
Calculations
The determination of back pay and overtime
for the 1500 workers was complicated by the fact that SNET could not
present evidence of either the precise amount of work performed by the
employees or evidence to refute the DOL’s calculations of what was owed to
the employees. The Second Circuit pointed out that under the FLSA, "when
an employer fails to keep adequate records of its employees’ compensable
work periods ... employees seeking recovery for overdue wages will not be
penalized due to their employer’s recordkeeping default." The burden is on
the employer to present evidence of the time worked. Since SNET could not
meet its burden, the court affirmed the lower court’s reliance on the
DOL’s calculations, which included $88,893.33 in overdue wages,
$4,823,884.60 in back pay, and $9,647,769.20 in liquidated damages.
Good Faith Defense Not Established
SNET challenged the almost $10 million
awarded in liquidated damages claiming that it had acted in "good faith"
and, therefore, should have the damages reduced. The "good faith" defense
may apply when an employer acts, or fails to act, in good faith and if it
had reasonable grounds for believing that the act or omission was not a
violation of the FLSA. The Second Circuit pointed out that to establish
good faith, the employer must produce "plain and substantial evidence of
at least an honest intention to ascertain what the Act requires and to
comply with it." The court emphasized that good faith "requires more than
ignorance of the prevailing law or uncertainty about its development."
Based on this definition, the court determined that it was not sufficient
for SNET to claim good faith because it did not purposefully violate the
FLSA, employees did not complain about the practice, or SNET complied with
industry-wide practice.
Lessons for the Rest of Us
This case provides several basic lessons
about FLSA compliance that all employers can follow to limit exposure to
wage and hour claims:
-
If you require employees to work during
lunch, you must pay for the break. However, you can require employees
to remain on-site during lunch periods without having to pay them.
-
To determine whether a meal break should
be paid, consider who receives the "predominant benefit" of the break
period. If employees can use the time for their benefit and do not
perform work, then employees generally do not have to be paid. It may
be prudent to pay for any meal break that requires even the appearance
of performing work for the employer.
-
Sloppiness in recordkeeping will only
hurt the employer. This case makes it very clear that courts will err
in favor of employees and rely on the workers’ recollections or the
DOL’s calculations regarding what should be paid time if the employer
does not keep adequate records. It also underscores the importance of
appropriately categorizing what time should be considered paid working
time to prevent these types of violations.
-
Misunderstanding the
FLSA or doing what
"everyone else does" is not a defense against violations. Employers
have an affirmative duty to attempt to understand the FLSA’s
requirements and to comply with them, even if no employee has ever
complained. As SNET found out, the complaint can be initiated from
outside the organization.
For further information on the
FLSA and
pay,
meal break, and
recordkeeping requirements, see Chapter 207,
Hours
of Work.
|
Personnel
Policy Service, Inc.
Connect on Linkedin
Like us on Facebook