Tag Archives: Offset

N.D.Miss.: Workers Who Performed Off-the-Clock After-Hours Work in Exchange for Food Were Employees Not Independent Contractors; Food Was Not Adequate Compensation for Work

Newsom v. Carolina Logistics Services, Inc.

This case was before the court on the parties’ competing cross-motions for summary judgment. As discussed here, at issue was whether the defendants were liable to plaintiffs for after-hours off-the-clock side work they performed for defendant cleaning its warehouse. Although the court held that any issue of fact precluded summary judgment with regard to the amount of damages due, the court granted the plaintiff (who participated in the case) summary judgment as to liability and denied the defendant’s cross motion for summary judgment on liability.

The court recited the following facts as relevant:

Shortly after starting his work, Newsom [the plaintiff] made a special arrangement with his center manager, Alfred Taylor, whereby Newsom was permitted to clock out from work after his shift and clean CLS’s warehouse in exchange for a banana box of food. The work consisted of sweeping, mopping, picking up trash, and using a floor cleaning machine to clean the entire warehouse. Newsom Decl. at 1. According to Newsom, he worked approximately four to four and-a-half hours after each shift. In October 2008, Newsom was transferred to CLS’s Olive Branch, Mississippi center. There, Taylor remained his supervisor and allowed the banana-box program to continue. Not long after the move, Newsom found that he could not clean the new center alone and recruited Plaintiff Shanda Bramlett, another CLS employee, to assist him with the more arduous work. Taylor agreed to allow Bramlett to participate in the program, and Bramlett began assisting Newsom in March 2009. Bramlett’s work entailed sweeping floors, cleaning bathrooms, and performing other cleaning tasks. She claims that she worked an average of somewhere between two and three-and-a-half hours after each shift. Taylor assisted Newsom and Bramlett by moving pallets that obstructed their ability to clean the premises. From December 2010 through March 2011, no one was allowed to take anything from the warehouse. Nevertheless, for reasons unexplained in their depositions, both Newsom and Bramlett continued to perform their after-hours work, apparently without any guarantee of compensation.

Describing the issues at bar, the court explained:

It is undisputed that Newsom and Bramlett worked for CLS “off the clock” in exchange for a banana box of food. This case turns on a simple legal question: Does Newsom and Bramlett’s after-hours work constitute a violation of the FLSA? The Plaintiffs advance a simple and persuasive argument why the Court should answer affirmatively. Put simply, the Plaintiffs maintain that, at all times pertinent to the present suit, they worked as CLS employees with CLS’s knowledge and under CLS’s supervision. Judging from the record, CLS’s management appears to have initially adopted this view, at least with respect to Newsom, by sending him a check and an apology letter. Now at the summary-judgment stage of litigation, however, CLS takes a different view of the matter, offering two legal theories why the Plaintiffs cannot recover for their FLSA claims: (1) Newsom and Bramlett acted as independent contractors, not employees, when performing their after-hours work, and (2) even if Newsom and Bramlett were employees, they were properly compensated for their work with food.

Initially, the court rejected the defendant’s contention that the plaintiff performed his after-hours work for defendant as an independent contractor (as opposed to as an employee), thus requiring that all of plaintiff’s hours be treated cumulatively each week for determining defendant’s overtime obligations. Rejecting the defendant’s second contention- that the banana box of food constituted sufficient wages, in lieu of actual wages- the court reasoned:

CLS advances its second contention-that Newsom and Bramlett were compensated appropriately under the FLSA with a brief-and incomplete-reference to the definition of ‘wages’ in the statute, and therefore the Court will give this argument short shrift. Under the FLSA, the term ‘wages’ can include board, lodging, and other facilities as CLS suggests. 29 U.S.C. § 209(m). As an initial matter, it is unclear as to whether banana boxes of food fall within the categories of “board, lodging, or other facilities.” The statute does not mention food, sustenance, or any other similar term. Moreover, the statute continues that in order for “board, lodging, and other facilities” to constitute wages under the FLSA, they must be “customarily furnished by such employer to employees .Id. (emphasis added). The Court declines to opine as to whether banana boxes of food are customarily furnished by CLS to its employees for cleaning services, and since CLS fails to make such an argument, the Court will dismiss it without prejudice. CLS may raise this argument subsequently with respect to damages, provided it advances the argument with cited legal authority.

Thus, the court granted plaintiff-Newsom’s motion for summary judgment as to liability, and left open the issue of damages.

Click Newsom v. Carolina Logistics Services, Inc. to read the entire Memorandum Opinion and Order.

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M.D.Fla.: Employer Not Entitled to Offset Unpaid Overtime Damages Based on Provision of Car, Car Insurance, Gasoline, or a Cell Phone It Provided

Vancamper v. Rental World, Inc.

This case was before the court on plaintiff’s motion for summary judgment.  Among the issues of interest ruled upon, the court held that plaintiff’s pre-arranged shuttling of defendants’ clients to and from the airport to defendants’ rental office for pre-arranged rental of defendant’s cars and the cleaning of such cars, satisfied the individual coverage test of the FLSA.  As discussed here, the court also addressed defendants’ argument that it should be entitled to offset plaintiff’s minimum wage and overtime damages, if any, due to its provision of a car, car insurance, gasoline and cell phone to plaintiff, during his employment.  Holding that such offsets are impermissible under the FLSA, the court explained:

“The parties dispute whether Vancamper’s use of a car, car insurance, gasoline, and a cellular phone provided by Rental World offset the overtime compensation that Rental World owed Vancamper as permitted by 29 U.S.C. § 207(h)(2). (Doc. No. 27 at 14; Doc. No. 33 at 5–6.) The Defendants bear the burden of establishing a credit for overtime compensation under Section 207(h)(2). See Leonard, 614 F.Supp. at 1187 (noting that an employer bears the burden of establishing a credit under 29 U.S.C. § 203(m) against the overtime owed to an employee (citing Donovan, 676 F.2d at 473–76)).

Under Section 207(h)(2), the forms of compensation described in 29 U.S.C. § 207(e)(5)-(7) are creditable toward overtime compensation. Those forms of compensation are as follows:

(5) extra compensation provided by a premium rate paid for certain hours worked by the employee in any day or workweek because such hours are hours worked in excess of eight in a day or in excess of the maximum workweek applicable to such employee under subsection (a) of this section or in excess of the employee’s normal working hours or regular working hours, as the case may be;

(6) extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and one-half times the rate established in good faith for like work performed in nonovertime hours on other days;

(7) extra compensation provided by a premium rate paid to the employee, in pursuance of an applicable employment contract or collective-bargaining agreement, for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek (not exceeding the maximum workweek applicable to such employee under subsection (a) of this section, where such premium rate is not less than one and one-half times the rate established in good faith by the contract or agreement for like work performed during such workday or workweek;

29 U.S.C. § 207(e)(5)-(7).

These provisions plainly contemplate a dollar-for-dollar credit against overtime pay for premium pay awarded on particular days and times. Wheeler v. Hampton Twp., 339 F.3d 238, 245 (3d Cir.2005). The parties do not cite, and the Court does not find, any authority that these provisions encompass use of a car, car insurance, gasoline, or a cellular phone provided by an employer. Moreover, because Vancamper’s uncontroverted time sheets show that he was never paid extra compensation for working during the periods described in Section 207(e)(5)-(7), (Doc. No. 27–5 at 1–102), Defendants are not entitled to any overtime credit under Section 207(h)(2).”

Click Vancamper v. Rental World, Inc. to read the entire order.

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D.Mass.: Offsets to Unpaid Overtime, Pursuant to § 207(h)(2) of FLSA, Attributable Only to Singular Workweeks in Which Both Premiums and Overtime Earned Simultaneously

Rudy v. City of Lowell

This case was before court on defendant’s motion for summary judgment, as to the methodology applicable to calculate plaintiff’s damages.  The interesting, but rarely raised issue: to the extent that the employer is entitled to an offset for certain premium compensation paid to the employee, to what extent can that offset reduce the unpaid overtime wage damages sought by the employee?  Holding that such offsets are only applicable in singular workweeks (i.e. they may only be taken in the week in which the payment giving rise to the offset occurred), the court explained: 

Section 207(h) (2) of the FLSA provides that extra compensation paid as described in paragraphs (5), (6), and (7) of subsection (e) of this section shall be creditable toward overtime compensation payable pursuant to this section.

29 U.S.C. § 207(h)(2). Only the “premium” portion of the contractual overtime rate (the extra one-half on top of the regular rate) may be used to offset the defendant’s statutory overtime liability. O’Brien v. Town of Agawam, 350 F.3d 279, 289 (1st Cir.2003) (“O’Brien I” ).

Here, the CBA allows employees to treat certain non-work days such as vacation, sick and personal days as hours actually worked for the purpose of determining overtime hours. The City also pays some workers time and one-half for working on holidays. The parties do not dispute that the extra compensation provided for in the plaintiffs’ CBA falls within the compensation described in subsection (5), (6) and (7) and can be used to offset defendant’s underpayment, pursuant to § 207(h)(2).

The parties do dispute, however, whether premium compensation earned in one week can be used to offset an underpayment in a different week. Plaintiffs argue that their damages for unpaid overtime should be calculated on a workweek basis and that any offsets pursuant to § 207(h)(2) may only be attributed to the singular workweeks in which the premiums and overtime were earned. In other words, an underpayment one week cannot be offset by a premium payment made in a different week. The defendant contends, to the contrary, that it is entitled to a “cumulative offset”, consisting of all premium payments, against any FLSA overtime it owes, regardless of when the premium payments were earned or made.

The FLSA does not provide an explicit answer to this difference of interpretation and the United States Circuit Courts have taken divergent positions. Some courts have held that § 207(h) offsets should be calculated on a workweek basis. Herman v. Fabri-Centers of Am., Inc., 308 F.3d 580, 585-93 (6th Cir.2002); Howard v. City of Springfield, 274 F.3d 1141, 1147-49 (7th Cir.2001); Roland Elec. Co. v. Black, 163 F.2d 417, 420 (4th Cir.1947); Conzo v. City of New York, 667 F.Supp.2d 279, 291 (S.D.N.Y.2009); Bell v. Iowa Turkey Growers Co-op., 407 F.Supp.2d 1051, 1063 (S.D.Iowa 2006); Nolan v. City of Chicago, 125 F.2d 324, 331 (N.D.Ill.2000). Other courts have allowed defendants to apply a cumulative offset. Singer v. City of Waco, 324 F.3d 813, 826-28 (5th Cir.2003); Kohlheim v. Glynn County, 915 F.2d 1473, 1481 (11th Cir.1990).

The First Circuit has not directly addressed this issue but other sessions in this District have. In O’Brien v. Town of Agawam, United States District Judge Michael A. Ponsor addressed facts analogous to those at bar and held that the employer could apply a cumulative offset. 491 F.Supp.2d 170, 176 (D.Mass.2007) (“O’Brien II” ). The Court surmised that the First Circuit would hold accordingly given its holding in Lupien v. City of Marlborough. Id. at 175. In Lupien, the employer’s practice of compensating employees for overtime by use of compensatory time (“comp time”), instead of in cash, violated the FLSA. 387 F.3d 83 (1st Cir.2004). With respect to damages, the First Circuit held that the employer did not have to pay its employees for overtime hours for which the employee had used comp time, regardless of when the employee used the comp time. The Court reasoned that paying the employees for overtime hours for which they had used comp time would result in double payment for the same overtime hours. In Murphy v. Town of Natick, another case analogous to this one, United States District Judge Richard G. Stearns agreed with the holding in O’Brien II and also allowed defendants to apply a cumulative offset. 516 F.Supp.2d 153, 160-61 (D.Mass.2007).

Although the two cases in this District are directly analogous to this case, the Court disagrees with them with respect to their interpretation of the FLSA and of Lupien. A further analysis of the Lupien case, the purpose of the FLSA and its interpretation by the Department of Labor (“the DOL”) and the First Circuit’s language in O’Brien I all undermine the position adopted by the courts in O’Brien II and Murphy. Rather, they lead to the conclusion that § 207(h)(2) offsets should be calculated on a workweek basis for the following reasons:

1. This case is distinguishable from Lupien and other First Circuit case law indicates support for a workweek offset model. Lupien dealt with an application of § 207(o) (regulating the use of compensatory time), not § 207(h). In fact, § 207(h) is not referred to in that opinion. Furthermore, here, the employees were not given the option of taking comp time rather than overtime payments. Thus, there is no risk in our case, as there was in Lupien, that the plaintiffs will be compensated twice for the same hours. Thus, the Court concludes that the First Circuit’s decision in Lupien does not indicate how it would decide the question at bar.

More on point is the First Circuit’s discussion of § 207(h)(2) in O’Brien I, in which it stated that

The regulations specifically explain how to treat such mid-workweek contractual overtime payments under the Act: only the premium portion of the contractual overtime rate (that is, the amount in excess of the employee’s regular rate) is deemed “overtime” pay and may be offset against any statutory overtime liability in the same week. O’Brien I, 350 F.3d at 289 (citing 29 C.F.R. §§ 778.201(a), 202(a)) (emphasis added). Thus, although not resolving the offset issue in that decision, the First Circuit conveyed its inclination by specifying that offsets pursuant to § 207(h)(2) would apply “in the same week”.

2. The FLSA overtime requirement uses a single workweek as its basic unit of measurement. Scott v. City of New York, 592 F.Supp.2d 475, 484 (S.D.N.Y.2008). Section 207(a)(1) sets forth the basic overtime rule:

no employer shall employ any of his employees … for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.

29 U.S.C. § 207(a)(1).

The focus on the unitary workweek is prevalent throughout § 207 and the DOL’s interpretation of that section. For example, 29 C.F.R. § 778.103 directs employers to calculate overtime liability on a weekly basis. Further, 29 C.F.R. § 778.104 provides that “[t]he Act takes a single workweek as its standard” and an employer cannot average the number of hours an employee worked in two weeks in order to avoid paying overtime:

[I]f an employee works 30 hours one week and 50 hours the next, he must receive overtime compensation for the overtime hours worked beyond the applicable maximum in the second week, even though the average number of hours worked in the 2 weeks is 40.

It is clear from § 778.104 that cumulative offsets were not contemplated by the DOL. In addition, where the single workweek model is problematic, i.e. when applied to firefighters and law enforcement officers, the FLSA includes a very specific and limited exception. See 29 U.S.C. § 207(k).

With regard to the exact issue before the Court, 29 C.F.R. § 778.202(c) explains that credits pursuant to § 207(h) may be given for overtime due “in that workweek”. See Howard, 274 F.3d at 1148-49; Conzo, 667 F.Supp.2d at 290. Finally, and perhaps most importantly, the DOL has also issued an opinion letter stating that surplus overtime premium payments, which may be credited against overtime1 pay pursuant to section 7(h) of FLSA, may not be carried forward or applied retroactively to satisfy an employer’s overtime pay obligation in future or past pay periods.

Letter from Herbert J. Cohen, Deputy Administrator, U.S. Dep’t of Labor, WH-526, 1985 WL 304329 (Dec. 23, 1985).

3. Overtime payments are intended to be paid as soon as is practicable. Although they are not entitled to deference by this Court, several of the DOL’s official interpretations of § 207 demonstrate the FLSA’s emphasis on ensuring that overtime payments are made soon after they are earned. Howard, 274 F.3d at 1148. For instance, 29 C.F.R. § 778.106 provides that overtime payments need not be paid weekly but must be paid as soon as is practicable:

Payment may not be delayed for a period longer than is reasonably necessary for the employer to compute and arrange for payment of the amount due and in no event may payment be delayed beyond the next payday after such computation can be made. See also Nolan, 125 F.Supp.2d at 332 (discussing 29 C.F.R. § 778.106 and holding that offsets for overtime paid apply on a pay period basis).

The reason for requiring employers to calculate and make overtime payments as soon as practicable is obvious: employees are entitled to know how much they will be paid and to prompt payment of what they have earned. As poignantly stated by the Seventh Circuit in Howard v. City of Springfield, if § 207(h)(2) were to permit a cumulative offset, employers could withhold overtime earnings in order to offset them against potential “short” weeks in the future. 274 F.3d at 1148-49. Under such a model, an employee’s overtime payments could be put on hold indefinitely until the employer is either willing or compelled to pay. That outcome is not only illogical but also contradicts the FLSA’s focus on the workweek as a unit and its concern with prompt overtime payments.

In fact, this case uniquely illustrates why a workweek offset is appropriate: if the City had correctly calculated its overtime rate and applied the § 207(h)(2) offsets contemporaneously, it would not have been able to apply those offsets to obligations incurred one or two years later. See id. at 1148. The workweek method of calculating offsets most closely reproduces what the parties would be entitled to had there been no error in the City’s initial computation of its overtime liability. See Nolan, 125 F.Supp.2d at 333.

4. The purpose of the FLSA, to protect workers from “excessive work hours and substandard wages”, is best served by the workweek offset model. Howard, 274 F.3d at 1148; see Herman, 308 F.3d at 585-93. This was clearly articulated in Scott v. City of New York, in which the DOL advocated for the workweek offset model. 592 F.Supp.2d at 484. The District Court in that case found that “both the structure of the Act and its legislative history lend credence to DoL’s interpretation.” Id. The Court explained how a cumulative offset undermines the protections afforded by the FLSA:

The [overtime] requirement protects workers from the imposition of excessive hours by placing an immediate cost on the employer. If employers were allowed to bank credit for contractual overtime against future obligations to pay statutory overtime, it would place workers in the employer’s debt[.] Id. In essence, it would require employees to work large blocks of overtime without premium compensation.

5. Finally, the arguments for applying a cumulative offset are unpersuasive. The City claims that a workweek offset will result in a windfall to the employees but that seems implausible given the fact that, if the City had been correctly calculating its overtime rate and applying the § 207(h)(2) offset at every pay period, the offset would have been applied only to the overtime liability in that pay period. Moreover, the circuit court cases cited by the City do not provide support for a cumulative offset. In Singer v. City of Waco, 324 F.3d at 827, the Fifth Circuit held that § 207(h) was inapplicable, while in Kohlheim v. Glynn County, 915 F.2d at 1481, the Eleventh Circuit did not even explain why it allowed a cumulative offset.

In summary, the Court finds that the plaintiffs’ method of calculating damages is most compatible with both the language and purpose of the FLSA’s overtime requirements and the First Circuit’s understanding of those requirements. As such, the plaintiffs’ damages for unpaid overtime should be calculated on a workweek basis and any offsets pursuant to § 207(h)(2) should be attributed only to the singular workweeks in which both premiums and overtime were earned. The Court concludes that only the premium portions of the extra payments, i.e. the extra one-half of the regular rate, may be used to offset the City’s overtime liability. O’Brien II, 491 F.Supp.2d at 176.”

Click Rudy v. City of Lowell to read the entire order.

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5th Cir.: Severance Payment Not A Set-off To FLSA Damages for Unpaid Overtime

Martin v. PepsiAmericas, Inc.

Plaintiff sued her former employer, to recover unpaid overtime wages allegedly due under the Fair Labor StandardsAct (“FLSA”), 29 U.S.C. § 201 et seq.  The district court granted Defendant’s motion to dismiss for lack of subject matter jurisdiction after finding that Plaintiff’s maximum potential recovery was less than the value of her severance package received from Defendant, which the district court determined should be set-off against anypotential damages awarded to Plaintiff.  Holding that such a set-off was improper, the Fifth Circuit vacated the district court’s dismissal and remanded the case for further proceedings.

The court reasoned:

“At issue is whether Pepsi can set-off the value of benefits it paid to Karen Martin under her severance agreement against Martin’s FLSA claim for overtime wages. The district court found that Pepsi was entitled to the set-off and, consequently, dismissed the case for lack of subject matter jurisdiction. We review a court’s ruling on a FED. R. CIV. P. 12(b)(1) motion to dismiss de novo. See Budget Prepay, Inc. v. AT&T Corp., 605 F.3d 273, 278 (5th Cir.2010) (citing Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001)). When challenging a 12(b)(1) motion, the party asserting jurisdiction bears the burden of proof. Id.

Pepsi initially contends that our opinion in Singer v. City of Waco, 324 F.3d 813 (5th Cir.2003), should be read broadly to allow set-offs in FLSA cases so long as they do not result in sub-minimum wages. Generally speaking, courts have been hesitant to permit an employer to file counterclaimsFN1 in FLSA suits for money the employer claims the employee owes it, or for damages the employee’s tortious conduct allegedly caused. See Brennan v. Heard, 491 F.2d 1, 4 (5th Cir.1974), rev’d on other grounds by McLaughlin v. Richland Shoe Co., 486 U.S. 128, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988); see also Donovan v. Pointon, 717 F.2d 1320, 1323 (10th Cir.1983) (“[T]he purpose of the present action is to bring Pointon into compliance with the Act by enforcing a public right. To permit him in such a proceeding to try his private claims, real or imagined, against his employees would delay and even subvert the whole process. Pointon is free to sue his employees in state court ….”).

In Heard, we said that set-offs and counterclaims are inappropriate in any case brought to enforce the FLSA’s minimum wage and overtime provisions. In that case, the Secretary of Labor sued an employer to enjoin it from withholding base and overtime wages from employees. Heard, 491 F.2d at 2. After finding a willful FLSA violation, the district court ordered the employer to pay its employees back wages, but permitted a set-off for the value of goods the employer had furnished to its employees. Id. This court reversed, stating that “[t]he federal courts were not designated by the FLSA to be either collection agents or arbitrators for an employee’s creditors.” Id. at 4. Noting that the only function of the federal judiciary under the FLSA “is to assure to the employees of a covered company a minimum level of wages,” we said that “[a]rguments and disputations over claims against those wages are foreign to the genesis, history, interpretation, and philosophy of the Act.” Id. And we observed that “[t]he only economic feud contemplated by the FLSA involves the employer’s obedience to minimum wage and overtime standards. To clutter [FLSA] proceedings with the minutiae of other employer-employee relationships would be antithetical to the purpose of the Act.” Id.; see also Pointon, 717 F.2d at 1323 (declining to address employer’s counterclaim for tortious sabotage in employee’s FLSA suit); Hodgson v. Lakewood Broad. Serv., 330 F.Supp. 670, 673 (D.Colo.1971) (declining to allow set-off or counterclaim against Secretary for employee’s breach of employment contract).

This language notwithstanding, in Singer v. City of Waco, 324 F.3d 813 (5th Cir.2003), we allowed an employer to set-off certain wage overpayments against the employees’ overall damages award. Singer involved a class of municipal fire fighters whose hours varied among pay periods. The city’s method for calculating their regular rate of pay under the FLSA resulted in an underpayment of the fire fighters’ overtime pay during some pay periods. Id. at 817, 824-25. When calculating how much money the city owed the fire fighters in unpaid overtime wages, “the district court found that the City’s method of calculating overtime compensation resulted in small deficiencies … in the work periods in which the fire fighters worked 120 hours,” but “the City’s method resulted in considerable overpayments ($126.20) in the work periods in which the fire fighters worked 96 hours.” Id. at 826. Because of this incongruity, the district court allowed the employer to set-off overpayments in some work periods against shortfalls in others. Id. at 826. We viewed these overpayments as akin to pre-payments, not prohibited by the Code of Federal Regulations or the FLSA, and affirmed. Id. We reconciled our holdings in Singer and Heard by observing that “the offsets permitted by the district court [in Heard] caused the final awards of many of the defendants’ workers to drop below the statutory minimum.” Id. at 828 n. 9 (quoting Heard, 491 F.2d at 3) (internal quotation marks omitted). Meanwhile, in Singer, “no party contend[ed] that the offset might cause the fire fighters’ wages to fall below the statutory minimum wage.” 324 F.3d at 828 n. 9.

Relying on this distinction, Pepsi contends that Singer should be read to limit Heard, to stand for the proposition that set-offs are appropriate in FLSA cases so long as they do not cause an employee’s wages to fall below the statutory minimum. Pepsi has cited, as did the district court, several lower court decisions from outside this circuit that have given Singer such a broad construction. See, e.g. Hanson v. ABC Liquors, Inc., No. 3:09-cv-966, 2009 U.S. Dist. LEXIS 108954, at *7-8 (M.D.Fla. Nov. 9, 2009) (collecting cases); see also Docket Entry No. 110, Memorandum Order at 5 n.3. These cases, however, predate our opinion in Gagnon v. United Technisource, Inc., 607 F.3d 1036 (5th Cir.2010), where we clarified that Heard’s longstanding prohibition of set-offs in FLSA cases is the rule in this circuit and Singer an exception.

In Gagnon, the district court found an FLSA overtime violation and awarded damages to the plaintiff. 607 F.3d at 1040. The defendant-employer counterclaimed and sought a set-off in the amount equal to the damages caused by the plaintiff’s breach of contract (i.e., his failure to notify the employer of his new address, as he was contractually obligated to do). Id. The district court did not address the employer’s counterclaims, and this court gave them short shrift likewise, holding that “our precedent suggests that such claims should not be addressed in an FLSA action.” 607 F.3d at 1042 (citing Heard, 491 F.2d at 4).

We specifically addressed the employer’s set-off claim in Gagnon, despite its semblance to the contract counterclaim, to clarify a reasonable uncertainty over Singer’s reach. See 607 F.3d at 1043 (“we nonetheless address the claim because we have previously held that offsets are permissible in FLSA actions”). Gagnon distinguished the set-off allowed in Singer as one that “simply acknowledged that the City had already paid the bulk of its overtime obligations.” Id. (citing Singer, 324 F.3d at 828) (emphasis in original). Gagnon (the employee), by contrast, was not paid “any additional sums that could be characterized as advanced or inappropriate amounts subject to an offset against the overtime owed to him,” id., and thus, a set-off was inappropriate.

In Gagnon, we rejected the employer’s argument, which Pepsi renews here, that Singer stands for the proposition that set-offs are allowed in FLSA cases so long as they do not result in sub-minimum wages. Although that reading of Singer may have been plausible at one time, Gagnon clarified that it was the unique character of the set-offs in Singer-that they represented overtime obligations already fulfilled-that allowed for a narrow exception to the bright-line rule spelled out in Heard. We continue to look with disfavor on set-offs unless the money being set-off can be considered wages that the employer pre-paid to the plaintiff-employee.

Pepsi contends, alternatively, that the benefits paid to Martin are similar to the fire fighters’ wages set-off in Singer because, in both cases, the employer paid some extra money or benefits to the employee to which the employee was not otherwise entitled. And in the opinion granting Pepsi’s motion to dismiss, the district court cited several lower court decisions that have allowed employers to plead set-offs as an affirmative defense in FLSA wage cases “where the employer paid the employee funds to which the employee was not entitled.” (Docket Entry No. 110, Memorandum Order at 5 & n.3.) This misconstrues the reciprocal nature of the benefits bargained for in Martin’s severance agreement. Although Martin had no legal entitlement to the benefits included in her severance package, these benefits were not gratuitous. Pepsi paid these benefits in return for Martin’s release of claims. That Martin later sued Pepsi on state law claims simply means that Martin did not keep her end of the agreement. Pepsi’s damages flow from a breach of contract. Pepsi is not entitled to set-off those damages here because unlike Singer, the money and benefits Pepsi paid to Martin were not wage payments, advance or otherwise; they were not related to her labors at all.

Because we find that the district court erred in setting-off the value of Martin’s severance package against her potential recovery at trial, we VACATE the district court’s dismissal of Martin’s FLSA claim for lack of subject matter jurisdiction and REMAND the case for further proceedings.”

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D.Md.: Defendant Not Entitled To Offset For Room and Board Or Meals, Due To Failure to Provide Documentation Of Costs To Plaintiff During Employment and Lack Of Agreement Regarding Same

Epps v. Way of Hope, Inc.

This case was before the Court on Plaintiff’s Motion for Summary Judgment.  Plaintiff was employed by defendants as a “care provider” at defendants’ facility, where she prepared meals, cleaned, did laundry, and assisted facility residents with personal care, hygiene, and medication.  Her duties also included night care of residents, including changing sheets, monitoring residents walking the halls, and personal hygiene.  Plaintiff alleged that, while she worked seven days per week, without weekend breaks, and that “it was not uncommon for [her] to work far in excess of 40 hours per week.”  She alleges that defendants did not pay her for all hours worked and did not pay her minimum wage.  She further alleged that defendants did not direct her to record her hours.  Among other things, as discussed here, Defendant responded that they provided plaintiff with room and board, and contended that plaintiff was aware that her receipt of room and board would constitute a portion of her wages, such that the provision of same should constitute an offset to any wages found due and owing.  The Court rejected this argument, as discussed below.

Rejecting Defendant’s argument regarding offset, the Court stated:

“Plaintiff seeks summary judgment on two related issues: (1) whether defendants took “impermissible” deductions from plaintiff’s wages; and (2) whether the claimed deductions can offset or reduce the amount of wages owed to plaintiff.

Under the FLSA and Maryland Wage and Hour Law (MWHL), an employer must compensate employees for all hours worked at a rate not less than the federal minimum wage, and at least one and one half the regular rate of pay for each hour worked over 40 in one workweek. 29 U.S.C. § 207(a)(1); MD.CODE ANN., LAB. & EMPL.¤ §§ 3-415(A), 3-420(A). WHILE “WAGES” MAY INCLUDE BOTH ACTUAL PAID WAGES AND “THE REASONABLE COST … TO THE EMPLOYER OF FURNISHING SUCH EMPLOYEE WITH BOARD, LODGING, OR OTHER FACILITIES, IF SUCH BOARD, LODGING, OR OTHER FACILITIES ARE CUSTOMARILY FURNISHED BY SUCH EMPLOYER TO HIS EMPLOYEE,” 29 U.S.C. § 203(B), THE EMPLOYER MUST MAINTAIN AND PRESERVE RECORDS SUBSTANTIATING THIS COST ON A WORKWEEK BASIS. 29 C.F.R. § 516.27(A)-(B); Md.Code. Ann., Lab. & Empl. § 3-503. FURTHERMORE, AN EMPLOYER MUST RECEIVE WRITTEN AUTHORIZATION FROM THE EMPLOYEE BEFORE COMPENSATING THE EMPLOYEE IN PART BY PROVIDING BOARD AND LODGING. MD. CODE ANN., LAB. & EMPL. § 3-503. FAILURE TO MAINTAIN SUCH DOCUMENTATION IS FATAL TO AN EMPLOYER’S ATTEMPT TO COUNT ROOM AND BOARD AS WAGES PAID TO AN EMPLOYEE.   JONES V. WAY OF HOPE, INC., 2009 WL 3756843, CIV. NO. 07-1517-BEL *3 (D.MD. NOV. 6, 2009); MARROQUIN V. CANALES, 505 F.SUPP.2D 283, 292-93 (D.MD.2007).

Although defendants claim in their opposition to the Motion for Summary Judgment that they “furnished records to show the cost of meals, lodging and other facilities supplied to the Plaintiff” (Paper No. 22, 5), it is undisputed that defendants did not provide plaintiff with documentation showing deductions from her wages for room and board during the course of her employment. (Paper No. 1, 5; Paper No. 4, 2; Paper No. 25, 4-5). It is also undisputed that plaintiff “never signed a document authorizing Defendants to take deductions for room and board from her wages.” (Paper No. 1, 5; Paper No. 4, 2). Defendants suggest that plaintiff’s awareness and acceptance of board and lodging entitled defendants to deduct the value of board and lodging from her pay. (Paper No. 22, 5-6). However, the FLSA’s protections are construed strictly, and defendants’ failure to obtain written authorization from plaintiff or to maintain documentation showing deductions from her wages for room and board precludes them from counting room and board within the wages paid to plaintiff. See, e.g., Marroquin, 505 F.Supp.2d. at 292-93 (collecting authority supporting the proposition that an employer is not entitled to offset wages by lodging or board when it fails to maintain and preserve requisite documentation); Jones, 2009 WL 3756843 at *3 (“The failure to document the amount, the failure to obtain [ ] written authorization from Jones, and the failure to include detailed documentation on the amount of room and board all preclude the Defendants from counting room and board within the wages paid to [Plaintiff].”).

For the reasons set forth herein, the Court hereby GRANTS partial summary judgment in favor of plaintiff on the issue of “offsetting” of wages owed to plaintiff, and specifically rules that, as a matter of law, defendants cannot use room and board provided by them to plaintiff to offset the wages owed to plaintiff under the FLSA and MWHL because they failed to obtain plaintiff’s written authorization for such deductions and failed to maintain requisite documentation of deductions.”

Click here to read the entire opinion Epps v. Way of Hope, Inc.

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S.D.Miss.: FLSA Prohibits Offset Based On Paying Employees 11 Minutes Per Day For Time Not Worked

Agee v. Wayne Farms LLC

The litigation in this case arises from the allegations that the Defendant has violated the Fair Labor Standards Act (“FLSA”) by failing to compensate a number of its employees for work-related activities. See generally29 U.S.C.S. § 201 et seq. The Plaintiffs in this case contest a specific pay practice: the use of a master time card to track the work hours of employees assigned to a processing line at the Defendant’s Laurel, Mississippi plant. The Plaintiffs contended that this pay practice allows the Defendant to forego paying them for time spent on activities that are compensable under the FLSA. The case was before the Court on Defendant’s motion for partial summary judgment. Finding that Defendant’s could not properly off-set time worked by Plaintiffs but not properly paid by Defendant, the Court denied Defendant’s Motion.

The Plaintiffs filed this action against Wayne Farms claiming violations of the minimum wage and maximum hour (overtime) requirements of the FLSA. see29 U.S.C. §§ 206, 207. In their motion for summary judgment, Defendant contended that the Plaintiffs’ complaints ignored Defendant’s practice of paying each employee for 11 extra daily minutes in addition to those minutes actually worked. Six of these eleven extra daily minutes are paid as “personal time.” Defendant alleged that it “adds another five paid minutes to each day by giving Laurel plant employees a thirty-five minute lunch break, while deducting only thirty of those minutes from paid time.” Defendant contended that when the additional 11 daily minutes are factored in, the 17 Plaintiffs listed above no longer allege viable FLSA claims.

Addressing this argument, deemed one of first impression by the Court, the Court explained, “[e]ven assuming that Wayne Farms has established that there is no genuine issue of material fact, this Court cannot grant the instant motion for summary judgment unless it is convinced that Wayne Farms is also entitled to judgment as a matter of law. FED R. CIV. P. 56(b). Wayne Farms has failed to cite even a single legal authority supporting its contention that it need not compensate its employees for work performed but can simply credit it against payments made to its employees for a paid lunch period or a paid personal time period . In light of Wayne Farms’ utter failure to cite legal authority in support of its contention, combined with the results of the Court’s independent research, the Court is not convinced that Wayne Farms would be entitled to judgment as a matter of law even if the facts of the case are as Wayne Farms represents them to be.

The question of whether an employer can lawfully credit “personal time” payments and “paid lunch” payments against compensation due to the employees under the FLSA appears to be one of first impression in this district. The Court notes, however, that one district court in this circuit has considered and rejected a similar argument. In addition, at least one circuit court has rejected a similar argument.

Section 207(h) of the FLSA governs compensation creditable toward minimum wage and overtime compensation. See§ 207(h)(1). Generally, “sums excluded from the regular rate … shall not be creditable” toward such wages. Id. Instead, only the “[e]xtra compensation paid as described in [§ 207(e)(5)-(e)(7) ] shall be creditable ….” § 207(h)(2).Sections 207(e)(5) through (e)(7) list only the “extra compensation provided by a premium rate” and are therefore inapplicable in the case at bar. As a result, the Court concludes that § 207(h) prohibits the manner of offsetting that Wayne Farms seeks to employ.

In Duplessis v. Delta Gas, Inc., 640 F.Supp. 891 (E.D.La.1986), a district court in this circuit interpreted § 207(h) with similar results. In Duplessis, the defendants sought “a credit against [the] plaintiffs’ award of overtime compensation for the extra compensation paid for nonproductive time and year end bonuses.”Id. at 896.Noting that the payments made were not “related to the performance of overtime, and instead [were] ‘payments made for occasional periods when no work is performed’ ” the Duplessis court held that the payments were not creditable as overtime. Id. at 897 (citing §§ 207(e)(2), (e)(3), and (h)).

The United States Court of Appeals for the Ninth Circuit held that an employer could not “lawfully credit the ‘paid lunch’ time payments against overtime compensation due the employees.” Ballaris v. Wacker Siltronic Corp., 370 F.3d 901, 903, 913-14 (9th Cir.2004). In Ballaris, the plaintiff employees received two meal periods: a 30-minute unpaid meal period and a 30-minute paid meal period. Id. at 906.The court noted that “the parties treated the half-hour paid lunch period as non-working time.”Id. at 909.Consequently, the court found “that the payments for the lunch periods constituted an additional benefit for employees and not compensation for hours worked.”Id. Denying the defendant’s request to credit the “paid lunch” compensation against the compensation required by the FLSA, the court relied primarily on § 207(h).See id. at 913-14.The court noted that “compensation for paid lunch periods is excluded from the regular rate under section 7(e)(2)” and that, as a result, any “offset of wages or overtime compensation due for hours worked is in direct violation of the express provisions of section 7(h).”Id at 913.In addition, the court noted that such a practice “would undermine the purpose of the FLSA” and would constitute a “false and deceptive ‘creative’ bookkeeping.” Id. at 914.

As these non-binding cases are consistent with this Court’s interpretation of the FLSA, the Court concludes that the motion for summary judgment should be denied.”

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