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An Employee’s Willful Underreporting of Hours Worked Is Not a Defense to a Claim under the FLSA, But The Determination of Hours Worked Cannot Be Based On Generalized Testimony 

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Reminger Co., LPA Spring 2015 Employment Practices Newsletter
June 1, 2015

In today’s economy, ever limited budgets combined with increasing expectations of productivity have led many employees to work “off the clock,” either by extending their traditional workday without reporting additional hours worked or working during their personal time on evenings and weekends.  Not surprisingly, this economic climate has led to a rise in the number of wage and hour claims under the Fair Labor Standards Act (“FSLA”), wherein employees allege that they were required to work off the clock to get their job done because: (1) the employer only permitted a certain number of hours to be reported; or (2) the employer refused or strongly discouraged overtime.  Because employees rarely report these off the clock hours, however, it is often the case that an employer’s first notice of an alleged FSLA violation is when a state or federal lawsuit is filed.  In fact, oftentimes the employer’s reaction is: “I didn’t even know the employee was working off the clock.”  While understandable, such a response will not typically be successful in defending a wage and hour claim.

The FLSA requires an employee to be paid at least one and a half times his/her regular wage for every hour worked in excess of forty hours per week.  See 29 U.S.C. §207(a)(1).  If an employee works overtime without pay (that is “off the clock”), the employee may recover damages if he/she can show that the employer knew about the overtime work.  Further, an employee is permitted to argue that an employer had “constructive knowledge” by showing that the employer should have known the employee was working above and beyond the hours actually reported.

In response to a claim of constructive knowledge, an employer will often assert equitable defenses, such as “unclean hands,” that is, the assertion that it was the employee’s knowing violation of company policies that caused his/her alleged injury.  Nevertheless, in Bailey v. Titlemax of Georgia, Inc., 776 F.3d 797 (11th Cir. 2015), the United States Court of Appeals for the Eleventh Circuit recently rejected the unclean hands defense, holding that an employee may pursue an overtime claim under the FLSA even when the employee knowingly violated company policies by working off the clock.

In Bailey, the employee alleged that his supervisor informed him that the employer did not pay overtime, encouraged him to work off the clock, and altered his time cards to decrease the number of work hours reported to the employer.  Notwithstanding, the employer had policies requiring employees to accurately report all hours worked, to verify time entries and, more importantly, to inform higher-level management or call an anonymous employee hotline if there was a problem with a supervisor.  Despite these policies, however, the employee failed to notify anyone of his supervisor’s actions, choosing rather to regularly work off the clock and to underreport hours worked on his time cards.  After resigning his job, the employee filed suit under the FLSA, alleging that the employer had constructive knowledge of his overtime hours because his supervisor instructed him to work off the clock and modified his time cards to reduce the number of hours worked.  In response, the employer asserted the defense of “unclean hands,” claiming the employee knowingly violated the employer’s policies by underreporting hours worked and failing to notify high-level management that his supervisor was altering his hours and forcing him to engage in off the clock work. 

The Eleventh Circuit rejected the employer’s defense of unclean hands.  In so doing, the court noted that the purpose of the FLSA is to “aid the unprotected, unorganized and lowest paid of the nation’s working population,” that is, the employees who lack sufficient bargaining power to secure for themselves a minimum subsistence wage.  To permit the defense of unclean hands “would allow the employer to wield its superior bargaining power to pressure or even compel its employees to underreport their work hours, thus neutering the FLSA’s purposefully reallocation of that power.”  The court found that the supervisor’s awareness that the employee was working overtime hours and not reporting those hours could be imputed to the employer, making it liable to the employee under the FLSA. 

The Bailey decision is significant because it imputes knowledge to employers based on the unsanctioned actions of their supervisors, thereby making them potentially liable under the FLSA.  Additionally, under Bailey, an employee’s willful non-compliance with the employer’s policies is not a defense to an FLSA claim.  Thus, while it is important for employer’s to have policies in place regarding the reporting of hours, it is equally important for employers to routinely audit their employees’ time reporting and the practices of all supervisory personnel to ensure that their actions are in compliance with the employer’s policies.

However, an employer’s constructive knowledge of FLSA violations, and the number of hours worked and not paid, must be based on specific evidence rather than on generalized testimony. In Holaway v. Stratasys, Inc., 771 F.3d 1057 (8th Cir. 2014), the United States Court of Appeals for the Eighth Circuit reasoned that an “employee who sued for unpaid overtime has the burden of proving that he performed work for which he was properly compensated.’” Where the employer failed to keep accurate records of hours worked (for example, where the employer did not allow the employee accurate report the hours s/he worked or where the employee was misclassified as exempt and did not keep time records), a plaintiff needs not prove “the precise extent of uncompensated work.” Rather, “once the employee has shown work performed for which the employee was not compensated and ‘sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference’ the burden then shifts to the employer to produce evidence to dispute the reasonableness of the inference.”

However, despite the relaxed evidentiary standard, the Eighth Circuit held that a plaintiff’s generalized testimony was inadequate to support an FLSA claim. In Holaway, the plaintiff failed the put forward any evidence of the amount and extent of his work in excess of 40 hours. The “base assertions of his overtime hours worked” and “vague testimony” was insufficient. He offered no specific evidence regarding the amount and extent of his overtime work. Specifically, he failed to provide a meaningful explanation of how he arrived at his final estimate of 60 hours a week, failed to check his hours worked against business records, and failed to take into account any paid holidays, any paid vacation, or any days he was on duty at home yet never called out to install or service a printer. Thus, the Eighth Circuit held that the plaintiff’s testimony was insufficient evidence to allow a fact finder to determine the amount of any overtime hours, and affirmed summary judgment in favor of the employer.

The takeaway from these two decisions cannot be minimized.  Courts often determine that employers have constructive knowledge that an employee worked overtime. An employer cannot assert the equitable defense of “unclean hands” and argue that the employee knowingly misrepresented the hours worked on his or her timesheet.  Rather, an employee may pursue an overtime claim under the FLSA even when the employee knowingly violated company policies by working off the clock. However, generalized testimony of hours worked is insufficient when determining the number of unpaid hours.

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