Court Rejects Employer’s No-Break “Flexible Time” Policy
By: R. Eddie Wayland, TCA Legal Counsel
A federal appeals court in Philadelphia recently held that an employer was liable under the Fair Labor Standards Act (“FLSA”) for not properly compensating its employees for rest breaks taken under the employer’s new “flexible time” policy. The decision came after an appeal from the trial court’s ruling that the employer violated a U.S. Department of Labor regulation that required breaks of less than 20 minutes to be compensable as working time.
The employer, a publisher and distributor of business publications, employed sales representatives to sell its materials. The employer previously had a policy that gave these employees two paid fifteen-minute breaks per day. The employer changed this policy in 2009, eliminating the paid breaks but allowing employees to log off of their computers at any time, for any reason. Employees were not paid for time they were logged off, however, unless they logged off for under ninety seconds at a time. This included time employees were logged off to use the bathroom or get coffee. The employer referred to this policy as “flexible time” or “flextime” and did not refer to time logged off as “breaks.” On average, the employees were paid for roughly five hours per day at the federal minimum wage of $7.25 per hour.
The U.S. Secretary of Labor brought an action against the employer in federal court, alleging that it had violated the FLSA by failing to pay the federal minimum wage to employees subject to the “flexible time” policy. The trial court found that the employer had not been properly crediting employees for all compensable time, which resulted in them being paid below the federal minimum wage, and awarded back wage compensation and liquated damages. The employer appealed.
Decision of the Appeals Court
The employer made several arguments on appeal, all of which were rejected by the court. First, the employer argued that the time its employees spent logged off of their computers did not constitute “work” within the meaning of the FLSA. The court observed that it is well established that some breaks constitute “hours worked” under the statute because “work” is not strictly limited to the time employees spend performing their job duties. While the FLSA does not require employers to provide employees with breaks, if employers choose to do so, Department of Labor regulations do require them to compensate the employees for breaks between five and twenty minutes as hours worked.
The employer then argued that it did not have a break policy because its “flexible time” policy allowed employees to choose their own work schedules and did not provide for traditional “breaks.” The court rejected this argument, looking past the label applied by the employer and examining the practical effect of the policy, which required employees to effectively “clock out” for everyday necessities like going to the bathroom while at work. The court emphasized that the FLSA is “humanitarian and remedial legislation” and has been interpreted liberally by the courts. For this reason, the court “refuse[d] to hold that the FLSA allows employers to circumvent its remedial mandates by disguising a break policy as ‘flexible time.’”
The employer also challenged the trial court’s award of liquidated damages. Under the FLSA, liquidated damages equal to the amount of back pay are mandatory unless the employer proves that it acted in “good faith,” with a reasonable basis to believe it did not have to pay for the off-the-clock work. Here, the court concluded that the employer’s efforts to investigate and comply with the regulation were insufficient, observing that the Department of Labor had “explicitly and repeatedly” stated that employees must be paid for breaks under twenty minutes. The court also noted that the employer’s principal owner admitted he was “vaguely aware” of the regulation and characterized the employer’s stance as a “selective interpretation.” Accordingly, the court upheld the award of liquated damages.
Alternative work schedules, including flexible time arrangements, are becoming more and more common in the modern workplace. As employers take steps to adapt to this changing landscape, they must ensure that any new policies sufficiently conform to existing laws and regulations. Many of these regulations and guidelines under the FLSA are several decades old and may be geared toward more traditional work schedules. Nevertheless, employers are expected to know and abide by them. This case also shows that courts are willing to look past an employer’s characterization of a policy and focus on its real-world effects. Employers should make sure the substance of a policy conforms with applicable law rather than rely too heavily on labeling. Consulting with experienced counsel or some other consultant knowledgeable in wage hour matters can be very helpful.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at email@example.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.
November 14, 2017