Last week, the Eleventh Circuit Court of Appeals found that filing an Fair Labor Standards Act law suit in the wrong court does not lead to tolling (or halting) the statute of limitations in the correct court.  See Wright v. Waste Pro USA, Inc., No. 22-12261, 2023 WL 395927 (11th Cir. Jun. 13, 2023).

Anthony Wright worked in Florida for Waste Pro of Florida, Inc., a subsidiary of Waste Pro USA, Inc.  (“Waste Pro”). In October 2017, he joined with other employees to sue Waste Pro and its Florida, North Carolina and South Carolina subsidiaries in the United States District Court for the District of South Carolina.  In July 2019, the South Carolina court dismissed Waste Pro and Waste Pro of Florida without prejudice because it did not have personal jurisdiction over those companies — meaning they weren’t sufficiently tied to South Carolina to be sued there.

In  August 2019, Wright re-filed his lawsuit in Florida.  But, the FLSA has two to three year statute of limitations — depending on whether the FLSA violation was willful.  As a result, Wright’s lawsuit in Florida was untimely.  So, he argued that the statute of limitations was tolled while his prior lawsuit was pending in South Carolina.

In short, the Eleventh Circuit was having none of it.  Generally, the filing of a lawsuit that is later dismissed without prejudice does not toll the statute of limitations.  See Justice v. United States, 6 F.3d 1474, 1478-79 (11th Cir. 1993).  As a result, Wright was forced to ask the Eleventh Circuit to create a special tolling rule for FLSA cases.  The Court declined to create a special rule and further found that Wright was not entitled to generalized “equitable tolling” because he could have taken other actions to preserve his claim before the statute ran.

This is a good decision for employers because it brings finality and clarity to a troublesome statute of limitations issue.  If an employer gets sued for violating the Fair Labor Standards Act, the first thing they should do is find the last possible date that an employee could have been paid improperly.  Many times, the statute of limitations will have expired on some or all of an employee’s claims.

Employers devise lot of strategies to avoid overtime.  After all, overtime can be costly.  I’m not a math major, but time-and-a-half is fifty percent more expensive.  Last week, an employer in Florida learned that its strategy to avoid overtime might violate the Fair Labor Standards Act.  See Thompson v. Regions Security Svcs., Inc., No. 21-1094, 2023 WL 3515222 (11th Cir. May 18, 2203).

David Thompson worked as a security guard for Regions Security.  He generally worked 40 hours per week and was paid $13.00 per hour.  In January 2019, however, Regions began to schedule him for approximately 20 hours of overtime per week — with an overtime rate of $19.50 per hour.  On July 22, 2019, Regions reduced Thompson’s hourly rate to $11.15 per hour — which equated to an overtime rate of $16.73 per hour.  A year later, Regions returned Thompson to a 40-hour-per-week schedule and raised his pay to $13.00 per hour.

Thompson sued and claimed Regions artificially lowered his pay to avoid paying $19.50 per hour in overtime.  The trial court dismissed Thompson’s claim, presumably because Regions did what the language of the FLSA requires: it paid time-and-a-half.  The Eleventh Circuit Court of Appeals reversed that decision.

The dispute centered on determining Thompson’s “regular rate” of pay — because the FLSA requires employers to pay time-and-a-half for  the “regular rate” in a work week.  Thompson claimed his regular rate was $13.00, while Regions said it was $11.15 during the year he was earning plenty of overtime.  The Eleventh Circuit relied upon guidance from the United States Department of Labor to find that employers are not allowed to reduce an employee’s hourly rate to avoid overtime:

That prohibition on lowering an employee’s regular rate and increasing the hours in his workweek prevents an employer from circumventing the FLSA’s overtime requirements. As 29 C.F.R. § 778.327 demonstrates, this non-circumvention rule prevents an employer from playing with an employee’s hours and rates to effectively avoid paying time-and-a-half for an employee’s overtime hours. Otherwise, an employer could use “simple arithmetic” to lower an employee’s rate and increase his hours so that he could never earn time-and-a-half pay—“no matter how many hours he worked.” Id. § 778.327(a).

Thompson, 2023 WL 3515222 at *5.

Importantly, the Eleventh Circuit established this rule in the context of a motion to dismiss.  Regions Security argued that it did not lower Thompson’s rate of pay to avoid overtime.  And, as the case progresses, it may be able to prove that fact-based defense.  But, because this was the beginning of the case, Thompson will be given the opportunity to show that his FLSA rights were violated.

The labor market is tight right now.  Employers are looking for ways to attract and retain employees.  One strategy for employee retention is to pay a bonus of some kind.  Everybody likes money.  So, bonuses are a great way to increase employee satisfaction.  But, employers paying bonuses should make sure that they do not accidentally violate the Fair Labor Standards Act as a result.

Here’s the scenario.  You pay your production employees $20 per hour.  But, you also promise them a $500 bonus if they reach certain production goals.  In the vast majority of cases, you must include at least some part of that $500 in their regular rate of pay for each week in the bonus period.  If the employee works more than 40 hours during a week for which the bonus is awarded, their overtime rate increases.

In our scenario, let’s say the employer has a rush job that must be completed in one week.  The employer promises a $500 bonus if production goals are met during the week.  The rush job requires an employee to work 60 hours during the week.  Ordinarily, the employee would receive $1,200 for 60 hours of work, plus $200 for overtime, for a total of $1,400.  But, with the $500 bonus, their regular rate of pay for the week would be:  $1,700 ($1,200 + 500), divided by 60 hours, for a regular hourly rate of $28.33.  Overtime would be calculated based on $28.33 per hour rather than $20.00.  As a result, the employee would be entitled to an additional $14.17 for each of the 20 hours of overtime, resulting in $283.40 owed for overtime.  In total, they would be owed: (1) $1,200 for working 60 hours at $20 per hour; (2) $500 for the production bonus; and, (3) $283,40 for overtime.  The total would be $1,983.40.

You might say:  “That’s only a difference of $83.40.”  But, scale matters.  If you owe $83.40 to 500 employees, your FLSA liability is now at least $41,700.  Additionally, even mis-payment to one employee can be costly.  The FLSA awards attorneys fees to employees who successfully sue for violations of the overtime laws.  Also, an experienced employee-rights attorney will almost certainly allege that the employer has a practice of failing to correctly calculate the hourly rate and ask a judge to certify a collective action under the FLSA.  Even if there is no such practice, you will probably spend a substantial amount in legal fees defending the claim.

Please note that the foregoing example is extremely simplified because it assumes that the bonus is paid for work performed solely in one week.  If the bonus period is longer, the math becomes more complex because the total amount of bonus is evenly distributed over the bonus period.  In our scenario, if the bonus was awarded for meeting production goals over the course of four weeks, the $500 would be divided by four and and extra $125 would be allocated to each of the four weeks.  This can require employers to retroactively calculate overtime amounts in many cases.

Not all bonuses must be included in the regular rate of pay for the week.  One of the primary issues in litigating these claims is whether the bonus was “discretionary” or “non-discretionary.”  If a bonus is non-discretionary, it must be included in the regular rate of pay for the week.  Here are some of the examples the United States Department of Labor gives for non-discretionary bonuses:

1. any bonus which is promised to employees upon hiring
2. any bonus which is the result of collective bargaining
3. bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently
4. bonuses which are announced to employees to induce them to remain with the fir
5. most attendance bonuses
6. individual or group production bonuses
7. bonuses for quality and accuracy of work
8. bonuses contingent upon the employee’s continuing in employment until the time the payment is to be made.

29 C.F.R. § 778.211(c).

Obviously, these overtime scenarios can get complicated quickly.  If you are paying bonuses to employees, work carefully with your bookkeeping department, your CPA and, if necessary, your employment lawyer to make sure that you comply with FLSA.

Often, questions from clients provide the opportunity for a new blog post.  Recently, I was asked whether a client was required to pay employees who attended voluntary, after-hours training.  Most people would think that voluntary training is just that:  voluntary.  Surely, you don’t have to pay for something that is voluntary, right?  Unfortunately, the answer is not so simple.  In fact, the general rule for most employers is:  If the training directly relates to the employee’s job, the employer must pay for the time spent in training — even if attendance is voluntary.

The Fair Labor Standards Act requires that employees receive compensation for their work time.  And, in many circumstances, training time is work time.  The FLSA’s implementing regulations provide that time spent at lectures, meetings, training programs and similar activities is not work time if four criteria are met:

(a)  Attendance is outside of the employee’s regular working hours;

(b)  Attendance is in fact voluntary;

(c)  The course, lecture or meeting is not directly related to the employee’s job; and,

(d) The employee does not perform any productive work during such attendance.

29 C.F.R. § 785.27.  In most circumstances, an employer wants an employee to attend training to benefit the job.  As  result, most employee training must be compensated (even if “voluntary”) because it will be “directly related to the employee’s job.”

But, there are always exceptions.  And, in this case, the regulations recognize “special situations” where voluntary training is not compensable even if it directly relates to the employee’s job:

There are some special situations where the time spent in attending lectures, training sessions and courses of instruction is not regarded as hours worked. For example, an employer may establish for the benefit of his employees a program of instruction which corresponds to courses offered by independent bona fide institutions of learning. Voluntary attendance by an employee at such courses outside of working hours would not be hours worked even if they are directly related to his job, or paid for by the employer.

29 C.F.R. § 785.31.

That regulation is clear as mud.  Fortunately, the Wage and Hour Division of the United States Department of Labor provided some clarification last year.  In Opinion Letter FLSA2020-15, WHD addressed six hypothetical scenarios focused on voluntary training and “special situations.”  Here is a link to the letter:  FLSA2020-15.  Most significantly, WHD found that a nurse who enrolled in a webinar directly related to her job, but who viewed the webinar in her off-work time, would not be entitled to compensation under the FLSA.

In summary, employers generally must pay for time spent in training that is directly related to an employee’s job.  But, employers may be excused from payment if “special situations” occur.

Sometimes, my clients ask if they are required to pay overtime to their hourly employees.  Some of the more-savvy clients know that most federal employment laws only apply to businesses of a certain size.  For example, Title VII of the Civil Rights Act of 1964 only applies to employers with fifteen or more employees.  So, these legal-oriented clients will ask about the size-requirement for the Fair Labor Standards Act, which requires overtime.

The answer:  there is no size requirement.  Instead, the FLSA looks at the business of the employer and the employee.  Employers must provide overtime for any employee “who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce ….”  29 U.S.C. §207(a)(1).  That language provides “individual coverage” for employees who work in commerce and also “enterprise coverage” for employers whose business  is engaged in commerce.

Last week, the Eleventh Circuit Court of Appeals made clear that it doesn’t take much for an employee to get “individual coverage.”  See Elien v. All County Enviro. Svcs., Inc., No. 2021 WL 1034800 (11th Cir. Mar. 18, 2021).  The Court concluded that an employee who “makes three to five phone calls per week to out-of-state customers and vendors” can receive “individual coverage” under the FLSA.

Wendy St. Elien was an administrative assistant for a pest control company in Florida.  She called out-of-state customers and vendors on the phone between three and five times a week.  She called “snowbird” property owners to ask for permission to charge their credit cards for services rendered at their Florida properties or to get permission to enter their premises.  She also called the out-of-state corporate headquarters of vendors to discuss billings and payments.  St. Elien sued her employer under the FLSA claiming that she was not paid overtime.  Her employer claimed that she was not covered by the FLSA.

The Eleventh Circuit’s opinion boiled-down to whether St. Elien was “engaged in commerce.”  The FLSA defines “[c]ommerce” to mean “trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.” 29 U.S.C. § 203(b) (emphasis added).  Because St. Elien was engaged in “communication” between States, the Court found that she was entitled to individual coverage under the FLSA. Despite that clear language, the trial court in St. Elien’s case relied upon an earlier Eleventh Circuit decision to require that an employee seeking individual coverage must be “directly participating in the actual movement of persons or things in interstate commerce ….”  But, the St. Elien court reversed the trial court because its reliance upon the earlier decision was overbroad.

St. Elien is a reminder to employers that they have broad obligations to pay overtime to their employees.  There are a few, rare employers who are truly intra-state — with no business conducted with other states.  But, in most cases, employers are required to pay overtime to their hourly employees.

On August 8, 2020, President Trump issued a Presidential Memorandum authorizing employers to defer withholding, deposit and payment of payroll tax obligations.  The idea behind that memorandum was to “put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.”  Here is a link to the memorandum: Payroll Tax Memorandum

The Internal Revenue Service is responsible for implementing the details of the memorandum.  On August 28, 2020, the IRS issued Notice 2020-65 to provide some additional guidance.  Here is a link to that notice: Notice 2020-65. Full disclosure:  I am not a tax attorney.  Nevertheless, the Presidential Memorandum is important to employers.  My accountant-friends at Anglin, Reichmann & Armstrong have published a client bulletin discussing Notice 2020-65 and it can be found here: Anglin Reichmann Update.

In summary, the memorandum allows employers to defer withholding payroll taxes from employee paychecks from September 1, 2020 to December 31, 2020.  In concept, this would result in more money in each employee’s pocket.  Other important aspects of the guidance include:

1. Employees are entitled to defer on the 6.2% employee portion of payroll tax (i.e., Social Security tax).
2. Only employees with pre-tax wages less than $4,000 per bi-weekly pay period are eligible for deferral.
3. THIS IS ONLY A DEFERRAL. Employees must re-pay the deferred tax through payroll tax deductions between January 1, 2020 and April 30, 2021.

At this point, there are more questions than answers.

1. The White House is hoping that the deferred payroll taxes will ultimately be forgiven.  But, only Congress has the power to authorize forgiveness. Nobody knows if that legislation will actually be passed.  If not, employees will face a double-tax at the start of 2021.
2. What happens if an employer defers the payroll tax and then the employee leaves/quits/is terminated by the employer?  Potentially, the employer will be left holding the bag.
3. If an employer adopts payroll tax deferral, will individual employees be able to opt out?

In my opinion, the current risks associated with payroll tax deferral outweigh the benefits.  Without a guarantee of forgiveness legislation from Congress, employees will receive no real benefit and face substantial monetary difficulties next year.  Employers get no real benefit and run the risk of paying deferred taxes for people who are no longer employees.

Like all COVID-related issues, payroll tax deferral is an evolving process.  Please follow this blog and my friends at Anglin, Reichmann for future updates.

In the age of COVID-19, many employers are allowing employees to work-from-home — also known as telework.  And, employers are required to pay hourly workers for all work they perform — whether at home or a specific job site.  Moreover, employers also have to pay for work they didn’t request  — unscheduled work.  But, how is an employer supposed to know exactly how much unscheduled work was performed from home?  On August 24, 2020, the United States Department of Labor’s Wage & Hour Division (“WHD”) issued guidance on that issue.  The guidance (known as Field Assistance Bulletin 2020-5) can be found at this link: FAB 2020-5.

Bulletin 2020-5 focuses on the concept of “reasonable diligence.”  Essentially, the bulletin says that employers should establish a system and use “reasonable diligence” to determine the amount of unscheduled work performed. But, the “reasonable diligence” standard also puts obligations on employees.   Employees who fail to follow reasonable time reporting procedures may not be entitled to be paid under the terms of the Fair Labor Standards Act.

As with almost all legal issues, the devil is in the details of each situation.  Employer’s can’t “bury their head in the sand” and ignore unscheduled work.  They also can’t implicitly or overtly discourage or impede accurate time reporting.  For example, employers shouldn’t tell employees:  “Don’t write down any work that you performed after 5:00.”  At the same time, employees can’t ignore well-published time keeping requirements and then complain about not being paid for unscheduled, unreported work.

So, how can employers engage in “reasonable diligence”?  Here are some basic steps:

1. Employers should create a simple time-keeping policy that requires all hourly employees to document all scheduled or unscheduled work.
2. Any time keeping policy should have a disciplinary component. Employers have to pay for unscheduled, and even unauthorized work.  But, in most circumstances, an employer can impose discipline if the time keeping policy is violated. IMPORTANTLY: NEVER WITHHOLD PAY WITHOUT CONSULTING A LAWYER.
3. Employers should do more than just adopt a policy.  They should educate hourly employers and their supervisors on the requirements of the policy.  This can be done with e-mails, memoranda and/or employee meetings. Employers should keep any available documentation to prove that the time keeping policy was effectively disseminated.

Obviously, WHD’s guidance is aimed at ensuring that hourly employees are properly paid when they work from home.  Yet, the WHD guidance also dovetails nicely with the IRS’s guidance requiring employers to keep adequate documentation to support any award of paid leave under the Families First Coronavirus Response Act.  Here’s a link to a blog post that I wrote discussing the IRS’s requirements for documentation of telework: IRS Documentation Requirements.