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The Facts
Remaining On-Site Does Not Trigger Pay; Work Does
Recordkeeping Violations Muddy Payout Calculations
Good Faith Defense Not Established
Lessons for the Rest of Us
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.
The Facts
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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.
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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:
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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.
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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.
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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.
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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.
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