Decision Limits Defenses to FLSA Overtime Claims

You’ve heard it before, here and likely elsewhere, of the risks of FLSA overtime lawsuits. Yet, these suits continue to make headlines. Simply put, qualified employers must pay employees at least 1.5 times their regular wage for every hour worked in excess of 40 hours per week.  This applies to certain professionals who, of course, employee non-exempts personnel. Whether it’s tax season, preparing for trial or meeting a tight deadline, professionals may ask employees to work beyond 40 hours and therefore may be subject to FLSA’s requirements. But what if the employee is also to blame? In certain jurisdictions, employers defending FLSA suits have claimed that it was the employee who is responsible for violating the FLSA and therefore the employer is off the hook. A recent decision suggests that this defense may no longer be viable.

In Bailey v. Titlemax, an employee was required to work overtime hours.  However, due to pressure from his supervisor, the employee would often under-report his hours to make it appear as if he was working less than 40 hours per week. The employee eventually resigned from the company and filed suit claiming that his employer violated the FLSA by failing to pay overtime.

The employer moved for summary judgment, claiming that the employee had violated company policies and had therefore contributed to his lack of overtime pay.  Specifically, the employer noted that the employee violated policies requiring employees to only work on the clock and to report accurate hours, and that he failed to notify a higher level manager of the supervisor’s attempt to pressure him to under-report his hours.  The employee acknowledged that he was aware of these policies and that he had violated their terms. The district court agreed with the employer, and held that the claims were barred by the equitable defenses of unclean hands and in pari delicto.

On appeal, the Eleventh Circuit noted that the goal of the FLSA is to counteract the inequality of bargaining power between employees and employers.  Consistent with this goal, the court determined that if an employer knows, or has reason to know, that its employee under-reported his hours, it cannot escape FLSA liability by asserting equitable defenses based on that under-reporting.

The court continued that this knowledge may be imputed to the employer when its supervisors or management encourage artificially low reporting.  Based on this standard, the court concluded that the company either knew or should have known that the employee had worked overtime because the employee’s supervisor had pressured him to under-report his time.  The employer was thus held liable, notwithstanding that the employee’s own actions had contributed to his lack of overtime pay.

In order to ensure compliance with the FLSA, employers cannot simply rely on employees to report accurate hours and wait to be notified of possible violations.  Instead, employers must be proactive and implement policies directed to supervisors and high level management regarding the need to report and maintain accurate employee overtime hours.  Employers who fail to take action run the risk of violating FLSA overtime laws and subjecting themselves to liability.