Employer With Constructive Knowledge Of Overtime May Be Liable Under FLSA



By:  Claudia D. Orr


Recently, in a published opinion, the Sixth Circuit Court of Appeals addressed whether an employer had liability under the Fair Labor Standards Act (“FLSA”) when it may have had only “constructive knowledge” that a non-exempt employee worked overtime, but failed to pay according to the act.  Let’s look at this case more carefully because the court has set a new standard under the FLSA.

The Plaintiff, Donna Craig, worked for a trucking company as its bookkeeper.  One of her duties was to process payroll. For the first year of her employment, she often worked in excess of 40 hours a week. Over the course of her employment, she worked over 500 hours of overtime, but only received her regular rate of pay except for one hour, after she raised the issue … just before she was fired.

The owner of the company claimed he did not know Craig was working overtime despite receiving all of the employees’ timesheets along with the payroll summary each week from Craig.  His testimony was that, if the summary showed a total payroll within the range he expected, he would approve it for processing.  However, at one point, the owner required Craig to list the tasks she performed each day so that he could keep track of her time.

The owner’s son also sent an email to his father suggesting he cap Craig’s hours to forty a week for the rest of the month.  But the son testified that he was just concerned about his father having to work weekends to supervisor Craig. Craig also testified that, on one occasion, she told the owner that she was taking work home on the weekends.

At one point, the company hired an assistant, thus eliminating the need for Craig to consistently work overtime.  But when the company suggested eliminating the assistant, Craig told the owner that, if she had to go back to working over 40 hours a week, she wanted “to be compensated at overtime pay”.  While Craig did not believe her request was well received, she reported an hour of overtime less than a month later.  Five days after she was paid time-and-a-half for her overtime hour, the company posted her job on Craigslist and she was terminated shortly thereafter.

Craig filed a lawsuit, but it was dismissed when the company’s motion for summary judgment was granted.  On appeal, the Sixth Circuit Court of Appeals (which hears the appeals for cases filed in federal courts in Michigan, Ohio, Kentucky and Tennessee) reversed that decision.

First, the Sixth Circuit noted that Craig had meticulously reported her overtime, but miscalculated the overtime pay by only charging the company the regular rate of pay for all hours worked, including those over 40 in a workweek.   While the district court had found that Craig had waived her right to the premium pay by not claiming it in the payroll, the Sixth Circuit disagreed, noting that an employee cannot waive their right to overtime pay under the FLSA.

The Sixth Circuit then recognized that “if an ‘employer knows or has reason to believe’ that an employee ‘is continuing to work’ in excess of forty hours a week, ‘the time is working time’ and must be compensated at time-and-a-half, even if the extra work performed was ‘not requested’ or even officially prohibited.”  In other contexts, the court has interpreted “reason to believe” or constructive knowledge as when an employer “should have discovered it through the exercise of reasonable diligence.” The Sixth Circuit then adopted the “reasonable diligence” standard as the test for FLSA cases.

In reviewing the evidence in a light most favorable to the plaintiff (the standard for summary judgment motions), the Sixth Circuit found that a jury could conclude that the company had constructive knowledge that Craig had worked overtime and that it failed to compensate her at the required rate.  It summarized the evidence, posing the following questions: “…how could [the owner] ‘keep track of [Craig’s] time’ if he never looked at the time cards?  Why would [the owner’s] son tell [the owner] to cap Craig’s work time to forty hours ‘for the month of June’ if they did not know that she had exceeded this threshold in the past? How could [the owner] not comprehend that Craig was working overtime if he was coming in to supervise her on weekends?”

The standard has now been set. Employers must use “reasonable diligence” to determine whether a non-exempt employee has worked any overtime hours and, if the employee did, the employer must pay time-and-a-half for all hours worked over 40 in a work week.  An employer may not grant “comp time off” instead (with the exception of public employers) and may not average time between two weeks even if within the same bi-weekly pay period.  For example, if an employee works 45 hours one week and 35 hours the next, the employer must still compensate the employee at time-and-a-half for the extra 5 hours during the first week. The only exception is when the 8/80 rule applies by agreement in the healthcare industry. 29 USC 207(j).

As everyone now knows, there are changes taking effect on December 1 that will affect whether an employee can be treated as exempt from overtime.  Now is the time to straighten out past mistakes!  If you need assistance with wage issues, consult with an experienced employment attorney, such as the author.

This article was written by Claudia D. Orr, who is Chair of the Legal Affairs Committee of Detroit SHRM, and an experienced labor/employment attorney at the Detroit office of Plunkett Cooney (a full service law firm and resource partner of Detroit SHRM).  She can be reached at corr@plunkettcooney.com or at (313) 983-4863. For more information go to: http://www.plunkettcooney.com/people-105.html.