Understanding FLSA’s Compensable Time Requirements for Non-Exempt Employees in 2014

REGULAR RATE COMPUTATION

• Section 7(e) of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 207(e), defines the regular rate of pay for employees as “all remuneration for employment paid to, or on behalf of, the employee.”
• The Supreme Court has described the regular rate as “the hourly rate actually paid the employee for the normal, nonovertime workweek for which the employee is employed.”  See Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424 (1945).  The regular rate, therefore, becomes a rate per hour.
• The FLSA does not require that compensation actually be paid on an hourly rate basis; earnings may be determined on a piece rate, salary, commission, or other basis.  Under these circumstances, the hourly rate of pay is generally determined by dividing the employee’s total workweek remuneration by the number of hours worked during that workweek.  See Walling v. Harnischfeger Corp., 325 U.S. 427 (1945).

“ON CALL” TIME

• An individual’s time spent “on call” predominantly in pursuit of his or her own personal benefit is not compensable under the FLSA.  Priddy v. City of Kiowa, 1998 U.S. App. LEXIS 16890, at *11 (10th Cir. July 22, 1998).
• Among the factors applied in determining whether employees have use of on-call time for personal purposes are as follows:

1.  whether there is an on-premises living requirement;

2. whether there are excessive geographical restrictions on employee’s movements;

3. whether the frequency of calls is unduly restrictive;

4. whether a fixed time limit for response is unduly restrictive;

5. whether the on-call employee can easily trade on-call responsibilities;

6. whether use of a pager can ease restrictions; and

7. whether the employee actually has engaged in personal activities during call-in time.

THE ON-THE-JOB TRAINING DILEMMA

• The Sixth Circuit concluded, contrary to the position of the Labor Department, that certain OSHA safety training could be voluntary when completion of the training was a condition of employment disclosed before hire.  Chao v. Tradesmen International, Inc., 310 F.3d 904 (6th Cir. Nov. 15, 2002).

OFF – THE CLOCK” or “ON-CALL WORK

• “Off-the-Clock.”  A target for DOL activity, particularly in “new economy” jobs like call centers 
• “On-Call.”  As with misclassification claims, on-call claims require a fact-intensive inquiry.  Is the employee:
• Engaged to wait, or waiting to be engaged

PRE-SHIFT AND POST-SHIFT DUTIES

• Amendments to Department of Labor Regulations issued under the FLSA further clarified that activities incidental to the use of an employer-provided vehicle for commuting are not considered principal activities, and commuting time that occurs before the first principle activity and last principal activity in the workday is excluded from compensable time.  76 Fed. Reg. 18832, 18834 (Apr. 5, 2011)
• IBP, Inc. v. Alvarez, 126 S.Ct. 514 (2005) (Confirmed that any activity that is “integral and indispensable” to an employee’s “principal activity” is compensable hours worked under the FLSA.)
• Affirmed the “continuous workday” principle.
• Perez v. Mountaire Farms, Inc., 650 F.3d 350 (4th Cir. 2011). (Doffing and donning activities at the beginning and end of shifts that are necessary to the work performed, and done for the benefit of the employer, as when required for safety sanitation becomes an “integral and indispensable” part of the employee’s principal activities, and are compensable hours worked under the FLSA.)

COMPENSATORY TIME AND “TIME-OFF”

• An employer should keep meticulous records to support time-off plans.  These plans are rarely used successfully and should be reviewed by counsel.

Gap Time

What is it?

• A gap time claim is “is one in which an employee has not worked 40 hours in a given week but seeks recovery of unpaid time worked, or in which an employee has worked over 40 hours in a given week but seeks recovery for unpaid work under 40 hours.” Lundy v. Catholic Health Sys. of Long Island Inc., 711 F.3d 106, 115 (2d Cir.2013).

How do courts analyze these claims?

• Approach #1: Gap time is never compensable under the FLSA, provided the employee’s total wages for a workweek divided by the number of actual hours worked exceeds the FLSA’s mandatory minimum wage.
• Rationale: The FLSA imposes two basic rules: (1) employers must pay at least $7.25 per hour worked under 40, and (2) employers must pay one and one-half times an employee’s regular rate for all hours worked over 40.  An employer who complies with these two rules cannot be found to have violated the FLSA.
• Approach #2: Gap time is not compensable under the FLSA in weeks in which no overtime is worked (i.e., 40 hours or less), but is compensable at the employee’s regular rate for any week in which the employee works more than 40 hours.
• Rationale: The determination of whether an employee has been properly paid for overtime hours requires calculation of his/her regular rate.  Calculation of the regular rate requires consideration of compensation for all hours worked under 40.  Therefore, all hours worked under 40 must be compensated

What does the DOL say?

• 29 C.F.R. 778.315: In determining the number of hours for which overtime compensation is due, all hours worked (see § 778.223) by an employee for an employer in a particular workweek must be counted. Overtime compensation, at a rate not less than one and one-half times the regular rate of pay, must be paid for each hour worked in the workweek in excess of the applicable maximum hours standard. This extra compensation for the excess hours of overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) or under any applicable statute has been paid.

The Head-Scratchers….

• Compensable meal periods: DOL regulations require meal periods to count as “hours worked.”  What does that mean for an employee who works less than 40 hours per week?  See Lamon v. Shawnee, 972 F.2d 1145, 1155 (10th Cir. Kan. 1992) (compensable meal periods paid at regular hourly rate).  The Fourth Circuit says this is a crucial distinction, while the Second Circuit says otherwise.
• Fluctuating workweek: DOL regulations require a “clear mutual understanding” for the fluctuating workweek method to apply (i.e., employee with fluctuating schedule receives fixed salary to compensate for all straight-time hours.)  How does this mesh with gap time?

Rounding Practices

• 29 C.F.R. 785.48(b): "Rounding" practices. It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees' starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.

What does that mean?

• Binissia v. ABM Industries, Inc., 2014 WL 793111 (N.D. Ill. Feb. 26, 2014)

The court granted conditional certification of a collective action class under FLSA challenging an employer’s rounding practices, finding that the rounding practices in two of the employer’s regions favored the employer over the employee.

• In the first region, the company rounded up to fifteen minutes away for pre-shift work, but allowed only a 5-minute grace period if an employee arrived late. The court found this rounding policy facially unequal.
• In the second region, the rounding policy and grace-period policy were facially neutral: the rounding policy applied whether the employee arrived early or late. But, employees were disciplined when they arrived late.

Volunteer Work

• 29 C.F.R. 785.44: Time spent in work for public or charitable purposes at the employer's request, or under his direction or control, or while the employee is required to be on the premises, is working time. However, time spent voluntarily in such activities outside of the employee's normal working hours is not hours worked.
• 29 C.F.R. 785.45: Generally, time spent by employees outside of their regular working hours in developing suggestions under a general suggestion system is not working time, but if employees are permitted to work on suggestions during regular working hours the time spent must be counted as hours worked. Where an employee is assigned to work on the development of a suggestion, the time is considered hours worked.

What does that mean?

• “Plaintiffs have spent time in their roles as union representatives working on charitable activities, including work for the United Way and March of Dimes. . . [P]laintiffs have presented evidence that at least some of the charitable work took place during the employees' normal working hours and on Southwestern Bell's premises. At a minimum, then, there is a genuine issue of material fact regarding the question of whether this charitable work constitutes work time, and I will deny summary judgment on this issue.”