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M.D.Fla.: Plaintiffs Entitled to Irrebuttable Presumption That Their Damage Calculations Are Correct Where Defendant Spoliated Payroll Records
Sec’y of Labor v. Caring First, Inc.
This case was before the court on the plaintiffs’ motion for sanctions. Specifically, plaintiffs sought sanctions as a result of the defendant-employers intentional destruction of the relevant payroll records pertaining to plaintiffs’ employment. While the court denied plaintiffs’ motion to the extent that it sought a default judgment, the court ordered that—to the extent plaintiffs prevailed on liability at trial—their calculation based on payroll records available from a third-party would be deemed irrebuttably correct, subject to the court’s approval.
The court provided the following history of the defendants’ egregious discovery misconduct:
This case arises under the Fair Labor Standards Act of 1938 (“FLSA“), as amended, 29 U.S.C. § 201 et seq. Plaintiff alleges that Defendants mischaracterized their licensed practical nurse and registered nurse employees as independent contractors. (Compl., Doc. 1, at 3). On December 3, 2015, this Court entered a scheduling order directing the parties to exchange all documents germane to this case by January 15, 2016. (FLSA Scheduling Order, Doc. 29, ¶ 1). Defendants failed to timely comply with the disclosure of documents and, as a result, an Order to Show Cause why sanctions should not be imposed was issued. (Feb. 25, 2016 Order, Doc. 32, at 1-2). After a hearing on the matter, this Court found that sanctions were warranted against Defendants and Defendants’ counsel for their failure to comply with the Court’s order, but held the sanctions in abeyance so long as Defendants produced all relevant documents in their possession, custody, or control by March 21, 2016. (Mar. 7, 2016 Order, Doc. 37, ¶¶ 1-3).
On March 11, 2016, Plaintiff filed a motion for sanctions against Defendants. (Mot. for Sanctions, Doc. 38). Therein, Plaintiff alleged that Defendants willfully destroyed, or negligently allowed to be destroyed, payroll records prior to May 2015, despite an ongoing investigation by the Department of Labor (“Department”). (Id. at 12-13). Additionally, Plaintiff asserted that since May 2015, an administrative employee had been deleting payroll records on a weekly basis by writing [*3] over them at the end of each work week. (Id. at 15-16). Defendants acknowledged that an employee was writing over the payroll week-to-week but claimed that the records prior to May 2015 were destroyed by a disgruntled former employee, Karen Reyes. (Id. at 7). On September 22, 2016, this Court entered an order denying the motion for sanctions because there was a factual dispute regarding whether Reyes deleted the payroll records and because Plaintiff had not yet determined what, if any, prejudice Plaintiff had suffered. (Sept. 22, 2016 Order, Doc. 55, at 6-7, 9). Nevertheless, the Court was troubled by Defendants’ actions and ordered Defendants to “immediately halt the destruction of any Current Payroll Records” and produce all payroll records to Plaintiff on a bi-weekly basis. (Id. at 10). Now, Plaintiff again seeks sanctions against Defendants and Defendants’ counsel pursuant to Federal Rule of Civil Procedure 37(b), 28 U.S.C. § 1927, and this Court’s inherent authority.
Following a discussion of the relevant standards for sanctions under Fed. R. Civ. Proc. 37, the court determined that the appropriate “punishment to fit the crime” in this case was to order that plaintiffs’ damages calculations would be subject to an irrebuttable presumption of correctness. Specifically, the court explained that plaintiffs could not show the extreme prejudice to warrant a default judgment, because they were apparently ultimately able to obtain the payroll records at issue from defendants third-party payroll company, notwithstanding defendants’ destruction of the copies in defendants’ possession.
Thus, the court held:
Plaintiff represented at the evidentiary hearing that he was able to obtain a sampling of nurses’ paychecks from Caring First’s bank. From these paychecks, which contain the hours worked by the nurses and their pay rate, Plaintiff claims he will be able to accurately calculate back wages. Therefore, as a sanction the Court will order the production of the nurses’ paychecks from Caring First’s bank. In addition, the Court will allow Plaintiff to recalculate potential back wages based on these paychecks. If Plaintiff prevails as to liability at trial, this calculation will be irrebuttably presumed to be correct, subject to Court approval.
This is definitely a case for all wage and hour practitioners to hold on to, because the circumstances of this case are unfortunately far from unique.
Click Sec’y of Labor v. Caring First, Inc. to read the entire Opinion of the court.
C.D.Cal.: Where Defendant’s Rounding Policy Was Facially Neutral No FLSA Violation
Alonzo v. Maximus, Inc.
In this case, brought under the FLSA and California State laws, plaintiffs alleged a variety of wage and hour violations, including failure to include all appropriate compensation when calculating regular rates (and resulting overtime premiums), unpaid off-the-clock work and impermissible rounding of work-time. Following discovery, the case was before the court on defendant’s motion for summary judgment. As discussed here, the court granted defendant’s motion with regard to plaintiffs’ rounding claim, because the evidence demonstrated that the rounding was facially neutral and did not have the overall effect of reducing plaintiffs’ reported time and resulting wages.
Significant to the rounding claim, it was undisputed that defendant’s timekeeping policy required plaintiffs to round their time worked to the nearest quarter of an hour (whether higher or lower) and that plaintiffs self-reported and thus self-rounded their reported time each day/week.
Discussing the rounding issue the court reasoned:
“Defendant moves for summary judgment on Plaintiffs’ Rounding Claim on the basis that Defendant’s time rounding policy is facially neutral, and, therefore, permissible under California law. For the reasons set forth below, Defendant’s Motion is GRANTED.
While no California statute or regulation expressly addresses the permissibility of using a rounding policy to calculate employee work time, the United States Department of Labor has adopted a regulation regarding rounding pursuant to the Fair Labor Standards Act (the “FLSA”) that permits employers to use time rounding policies under certain circumstances:
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. 29 C.F.R. § 785.48(b) (2011).
While few Courts have interpreted this regulation, those that have recognize that the regulation permits employers to use a rounding policy for recording and compensating employee time as long as the employer’s rounding policy does not “consistently result[ ] in a failure to pay employees for time worked.” See, e.g., Sloan v. Renzenberger, Inc., No. 10–2508–CM–JPO, 2011 WL 1457368, at *3 (D.Kan. Apr.15, 2011).
That is, an employer’s rounding practices comply with § 785.48(b) if the employer applies a consistent rounding policy that, on average, favors neither overpayment nor underpayment. East v. Bullock’s, Inc., 34 F.Supp.2d 1176, 1184 (D.Ariz.1998) (granting summary judgment in employer’s favor where “evidence show[ed] that [employer’s] rounding system may not credit employees for all the time actually worked, but it also credits employees for time not actually worked” so that the employer’s “rounding practices average[d] out sufficiently to comply with § 785.48(b)”); see also Adair v. Wis. Bell, Inc., No. 08–C–280, 2008 WL 4224360, at *11 (E.D.Wis. Sept.11, 2008) (approving policy where there was no evidence to suggest it systematically favored employer); Contini v. United Trophy Mfg., No. 6:06–cv–432–Orl–18UAM, 2007 WL 1696030, at *3 (M.D.Fla. June 12, 2007) (granting employer’s motion for summary judgment where the “[employer], throughout [the employee’s] employment, [used] a consistent policy as to the rounding of clocking-in and clocking-out, which [was] both fair and evenly applied to all employees.”).
An employer’s rounding practices violate § 785.48(b) if they systematically undercompensate employees. See, e.g., Russell v. Ill. Bell Tel. Co., 721 F.Supp.2d 804, 820 (N.D.Ill.2010) (time rounding and log-out policies may violate FLSA if they “cause[ ] plaintiffs to work unpaid overtime”); Austin v. Amazon .com, Inc., No. C09–1679JLR, 2010 WL 1875811, at *3 (W.D.Wash. May 10, 2010) (denying defendant’s motion to dismiss where policy “allows rounding when it benefits the employer without disciplining the employee; but disciplines the employee when the rounding does not work to the employer’s advantage”); Eyles v. Uline, Inc., No. 4:08–CV–577–A, 2009 WL 2868447, at *4 (N.D.Tex. Sept.4, 2009) (granting summary judgment for plaintiff where defendant’s rounding policy “encompasses only rounding down”); Chao v. Self Pride, Inc., No. Civ. RDB 03–3409, 2005 WL 1400740, at *6 (D.Md. June 14, 2005) (ruling that employer’s practice of rounding employee time down violated FLSA).
The parties concede that the federal standard governs this case, as California courts look to federal regulations under the FLSA for guidance in the absence of controlling or conflicting California law, Huntington Mem’l Hosp. v. Superior Court, 131 Cal.App.4th 893, 903, 32 Cal.Rptr.3d 373 (2005), and the California Division of Labor Standards Enforcement (the “DLSE”) has adopted the Department of Labor regulation in its Enforcement Policies and Interpretation Manual (“DLSE Manual”), DLSE Manual §§ 47.1–47.2.
It is undisputed that Defendant employed a facially neutral time rounding policy. Defendant’s Corporate Employee Manual required employees to self-report their time “on a daily basis by recording hours worked to the nearest quarter hour” on timesheets provided at the beginning of the pay period. (Doc. 127–13, Ex. R at 110; id., Ex. S at 127.) And Defendant’s human resources managers testified that Employment Case Managers in each of Defendant’s San Diego, Orange County, and Los Angeles locations adhered to this policy by rounding their hours worked to the nearest quarter hour and entering that figure on a daily basis into an electronic time sheet on Defendant’s computer system. (Doc. 127–17 ¶ 5 (San Diego); Doc. 130–15 ¶ 5 (Orange County); Doc. 130–14 ¶ 5 (Los Angeles).)
Plaintiffs do not dispute the mechanics of Defendant’s time reporting policy. In fact, their expert acknowledges that “class members were required to and did round [the total hours worked] to the nearest quarter hour” on their self-reported time sheets. (Doc. 126–5 ¶ 12.) Rather, Plaintiffs contend that “[o]ver a period of time, such rounding resulted in putative class members being paid for less than all the time they actually worked” in violation of § 785.48. (Doc. 126–5 ¶ 12.)
In support of their contention, Plaintiffs point to records generated at Defendant’s San Diego locations by an electronic system used to record when employees entered and exited Defendant’s offices (the “Simplex System”). The Simplex System was “essentially the electronic equivalent of a sign in/sign out sheet. An employee could punch in their number when they arrived at the workplace and then punch in the number when they left the workplace.” (Doc. 127–17 ¶ 6.; see also Doc. 136–2, Ex. A. 52:9–22.) Based on those entries, the Simplex System generated reports “in a variety of formats [showing] various clock-in and clock-out times for each employee for each date” (the “Simplex Records”). (Doc. 127–18 ¶ 16.) At least some employees also used the Simplex System to record the beginning and end of their lunch breaks. (Doc. 136–2, Ex. A. at 54:8–13.)
Plaintiffs used a sample of these Simplex Records to perform two statistical analyses. In the first, Plaintiffs compared the clock-in/clock-out times recorded by Simplex on a particular day with shift beginning and end times for that day. Plaintiffs conclude that their analysis shows that the number of minutes that would have been subtracted from employees’ time under Defendant’s rounding policy was 5.4% more than the number of minutes that would have been added to their time under Defendant’s rounding policy. (Doc. 129–4 ¶ 5; Doc. 127–18 ¶ 19.) In the second, Plaintiffs compared the total hours reflected on Simplex Records for a given employee on a particular day with the total amount paid to that employee reflected on his or her timesheets. Plaintiffs conclude that analysis reveals a net underpayment of 472.72 minutes for the sample group. (Doc. 129–4 ¶ 8.) Based on these statistical comparisons, Plaintiffs assert a triable issue of fact as to whether Defendant’s rounding policy is invalid under California law because it “result[ed], over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” 29 C.F.R. § 785.48(b). Plaintiffs are mistaken.
Even assuming the accuracy of Plaintiffs’ mathematical calculations, which Defendant disputes, Plaintiffs’ statistical analysis of Simplex Records does not create a genuine issue of material fact as to their Rounding Claim. At oral argument, Plaintiffs’ counsel conceded that the evidentiary record is devoid of evidence that Simplex Records reflect time actually worked by Plaintiffs, as opposed to time Plaintiffs may have been present on Defendant’s premises but not engaged in work activities. Rather, Plaintiffs’ counsel clarified that the Rounding Claim is based on Plaintiffs’ contention that all on-premises time reflected by Defendant’s Simplex Records constitutes time during which Plaintiffs were subject to Defendant’s control, and, therefore, compensable as a matter of law under the California Supreme Court’s decision in Morillion v. Royal Packing Co., 22 Cal.4th 575, 94 Cal.Rptr.2d 3, 995 P.2d 139 (2000). The Court disagrees with Plaintiffs’ reading of Morillion.
In Morillion, the California Supreme Court considered whether employees who were required by their employer to travel to a work site on the employer’s buses were “subject to the control of [the] employer” such that their travel time constituted compensable “hours worked” under Industrial Welfare Commission wage order No. 14–80. Id. at 578. The Court concluded that the employees were “subject to the control of [their] employer” during the time they traveled to the employer’s work site because the employer “require[d] plaintiffs to meet at the departure points at a certain time to ride its buses to work,” “prohibited them from using their own cars,” and “subject[ed] them to verbal warnings and lost wages if they [did not use the employer’s transportation].” Id. at 587. Accordingly, the employees’ compulsory travel time constituted compensable “hours worked.” Id. at 594. In so ruling, however, the Court clarified that:
[E]mployers do not risk paying employees for their travel time merely by providing them with transportation. Time employees spend traveling on transportation that an employer provides but does not require its employees to use may not be compensable as ‘hours worked .’ Instead, by requiring employees to take certain transportation to a work site, employers thereby subject those employees to its control by determining when, where, and how they are to travel. Id. at 588 (emphasis added). “The level of the employer’s control over its employees, rather than the mere fact that the employer requires the employee’s activity, is determinative.” Id . at 587.
This case does not present a situation in which Plaintiffs were “subject to the control of [Defendant]” such that all time spent on Defendant’s premises is compensable under the reasoning and holding of Morillion. Here, unlike in Morillion, Plaintiffs have presented no evidence that Defendant required them to arrive at its offices before their shifts began or to remain on the premises after their shifts ended. Nor have they presented evidence that Plaintiffs were engaged in work during any of the on-premises time reflected on their Simplex Records that was not accounted for in their electronic time sheets. In the absence of such evidence, the Simplex Records are simply immaterial to whether Defendant’s rounding policy systematically undercompensated Plaintiffs, and, therefore do not create a genuine issue of material fact as to the legality of Defendant’s rounding policy.
Accordingly, Defendant’s Motion for Summary Judgment is GRANTED as to Plaintiffs’ Rounding Claim.”
Click Alonzo v. Maximus, Inc. to read the entire Order Granting in Part and Denying in Part Defendant’s Motion for Summary Judgment and Granting in Part and Denying in Part Plaintiffs’ Motion for Summary Judgment.
D.Nev.: Defendant Compelled to Produce Time and Pay Records Maintained by Third-Party Payroll Company, Notwithstanding Objection That They Did Not “Possess” Same
Kiser v. Pride Communications, Inc.
This case was before the court on plaintiff’s motion to compel the production of discovery related his wages and hours. As discussed here, the defendants objected to such discovery. Defendants’ primary objection was that it did not have actual possession of the discovery sought. Rather, defendants maintained that they should not be responsible to produce the discovery, because it was in the possession of their third-party payroll vendor. The court rejected defendants’ contention and ordered the production of the discovery.
Overruling defendants’ objection regarding physical custody of the discovery sought, the court explained:
“Defendants’ objection based on their assertion that they do not possess the requested documents or electronically kept data because “a third-party vendor … process[ed][the] payroll” is overruled. Pursuant to Fed.R.Civ.P. 34, documents sought in discovery motions must be within the “possession, custody, or control” of the party upon whom the request is served. However, the “phrase ‘possession, custody, or control’ is disjunctive and only one of the numerated requirements need be met.” Soto v. City of Concord, 162 F.R.D. 603, 619 (N.D.Cal.1995)(quoting Cumis Ins. Society, Inc. v. South–Coast Bank, 610 F.Supp. 193, 196 (N.D.Ind.1985). Therefore, “actual possession” is not required. Soto, 162 F.R.D. at 619. Rather, a “party may be ordered to produce a document in the possession of a non-party entity if that party has a legal right to obtain the document or has control over the entity who is in possession of the document.” Id (internal citation omitted).
Here, the fact that defendants do not actually possess the documents does not matter. As admitted to in their response (# 28–1 Exhibit B) and their opposition (# 29), the defendants requested and ordered the third-party payroll vendor, Southwest Payroll Service, Inc., to perform the acts of processing and maintaining the payroll and the accompanying records. Thus, it is “inconceivable” that the defendants lack the ability to request and obtain such records from Southwest Payroll Service, Inc. Id. at 620 (holding that when a third-party physician performed evaluations on officers at the request of the defendant, “it seems inconceivable that the [defendant] lacks the ability to obtain such evaluations upon demand .”). Therefore, the court finds that such records are in Pride’s control, and should be disclosed in response to the plaintiffs’ request. Id. at 619 (finding that the “term ‘control’ includes the legal right of the producing party to obtain documents from other sources on demand)(emphasis added)(internal citations omitted); See also Japan Halan Co. v. Great Lakes Chem. Corp., 155 F.R.D. 626, 627 (N.D.Ind.1993)(holding that close business relationships constituted control of documents held by a third-party.).
Accordingly, and for good cause shown,
IT IS ORDERED that plaintiffs Anthony Kiser et al’s Motion To Compel The Production Of Documents (# 28) is GRANTED.
IT IS FURTHER ORDERED that defendants Pride Communications, Inc. et al shall produce the requested documents, in any and all available forms, on or before November 30, 2011.”
As more and more employers, small and large, continue to rely on third-party payroll vendors, this will likely be a decision with wide-felt impact in wage and hour circles. Especially in cases involving so-called ESI (Electronically Stored Information)- where the employer transmits data to a payroll service like ADP or Paychex and retains little or none of the required records itself, this decision seems to say that anything the payroll company has, the defendant will be deemed to “have” as well.
Click Kiser v. Pride Communications, Inc. to read the entire Order.
W.D.Mo.: Plaintiffs Sufficiently Pled a “Rounding” Claim, Where Alleged Defendants’ Policy of Rounding Resulted in Improper Denial of Wages
McClean v. Health Systems, Inc.
The Plaintiffs, Certified Nursing Assistants (“CNAs”) for Defendant, claimed that they were required to work off the clock during automatically deducted meal breaks, during mandatory meetings and training sessions, and while performing mandatory data entry known as “dart charting.” The result of these policies was to allegedly deny the Plaintiffs wages and overtime. After the Plaintiffs amended their Complaint the Defendants filed a motion to dismiss regarding several of Plaintiffs’ allegations. As discussed here, the court denied Defendants’ motion as it pertained to Plaintiffs’ claims arising from Defendants’ policy of rounding their time to the nearest quarter of an hour, regardless of actual time worked.
Discussing the sufficiency of the rounding claim, the court explained:
“One of the Plaintiffs’ substantive allegations is that the Defendants have a practice of “reduc[ing] [their] employees’ work hours by rounding their hours to the nearest quarter hour of time to their detriment (i.e., the rounding did not average out to equally benefit Defendants and its employees over time) which results in Defendants not paying its employees for all time worked.” Doc. 51 at ¶ 112. Defendants cite federal regulations which expressly allow the practice of rounding to the nearest 15–minute increment. 29 C.F.R. § 785.48(b) (“For enforcement purposes this practice of [rounding to 5, 10 or 15–minute increments] 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.”). The Defendants submit Harding v. Time Warner, Inc. in support of their position that the Plaintiffs have not sufficiently pled a claim of improper rounding. No. 09cv1212–WQH–WMC, 2010 WL 457690 (S .D.Cal. Jan. 26, 2010). In Harding, the court found that, despite describing the allegedly improper rounding procedures in detail, Harding had failed to provide “specific factual allegations” showing that employees had been underpaid. Id. at *5. The Plaintiffs provided the following statements regarding rounding in their Amended Complaint:
112. Defendants further reduce its [sic] employees’ work hours by rounding their hours to the nearest quarter hour of time to their detriment (i.e., the rounding did not average out to equally benefit Defendants and its [sic] employees over time) which results in Defendants not paying its [sic] employees for all time worked. This practice results in Plaintiffs and all other similarly situated employees being denied wages including overtime premiums and Defendants’ illegal rounding practices are not de minimus. [sic]
113. Even though Defendants had a computerized timekeeping system in place and could have easily recognized and paid Plaintiffs’ and other similarly situated employees’ actual hours worked, Defendants deliberately disregarded the system’s records and rounded Plaintiffs’ and other similarly situated employees work time down to the nearest quarter of an hour.”
114. Defendants willfully and illegally rounded Plaintiffs’ and other similarly situated employees’ work time down to the nearest quarter of a [sic] hour.
Doc. 51 at ¶¶ 112–14 (legal conclusions in bold). Iqbal requires “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949. The Plaintiffs allege that the rounding did not average out properly. They further allege that the Defendants maintain a computerized system which keeps time, but still chose to use rounding. Assuming the truth of these allegations, the Court can plausibly infer that the Defendants chose to round time because it would be more favorable than paying for actual time worked on a minute by minute basis, thus violating the averaging rationale inherent to rounding. While the Plaintiffs could have chosen to state more, to require them to plead, for example, specific minutes on specific days for which they were denied wages would be fact pleading inconsistent with Iqbal. Hamilton v. Palm, 621 F.3d 816, 817 (8th Cir.2010) (noting that “Iqbal did not abrogate the notice pleading standard of Rule 8(a)(2)”). The Defendants’ Motion to dismiss the Plaintiffs’ rounding claim is DENIED.”
Click McClean v. Health Systems, Inc. to read the entire Order.
2d. Cir.: Where Employee’s Falsification of Time Records Was Carried Out at Employer’s Behest, Employer Cannot Be Exonerated by Fact That Employee Entered Erroneous Hours on Timesheets
Kuebel v. Black & Decker Inc.
This case was before the Second Circuit on Plaintiff’s appeal of an order awarding Defendant summary judgment. Plaintiff asserted two distinct claims below: (1) that work performed on his PDA and in Defendant’s computer system (at home) extended his continuous workday such that Defendant’s failure to pay him for all time up to including such work was a violation of the FLSA; and (2) that he was entitled to be paid for off-the-clock work that he did not report because his supervisors instructed him not to. While the court affirmed summary judgment on the “continuous workday” claim, it reversed as to the off-the-clock claim, holding that “[a]t least where the employee’s falsifications were carried out at the instruction of the employer or the employer’s agents, the employer cannot be exonerated by the fact that the employee physically entered the erroneous hours into the timesheets.”
With respect to the off-the-clock claims, the relevant facts cited by the court were:
“[plaintiff] asserts that he falsified his timesheets because his supervisors instructed him not to record more than forty hours per week. He testified that at monthly meetings, “there was always a point that [Idigo] and Mr. Davolt and [another manager] would always indicate that we [Retail Specialists] were not to put more than forty hours on our time sheet,” and that Davolt “told all of the reps that they were only to record forty hours a week, … no matter what they worked during that particular week.” Kuebel further testified that during a personal discussion with Davolt on February 22, 2007, Davolt said to him, “you can’t work overtime, you’re only supposed to put forty hours on your timecard.”
Discussing the viability of the off-the-clock claims that Plaintiff asserts he was owed overtime wages for time he allegedly worked, but admittedly did not report, the court first discussed the general legal principles applicable to FLSA claims where the Plaintiff alleges Defendant failed in its recordkeeping obligations (to maintain accurate time records), under Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 686–87 (1946). The court below had determined that Plaintiff was not entitled to Anderson’s lenient burden of proof where, as here, he acknowledged that he falsified his own records. However, the Second Circuit disagreed, holding:
“At least where the employee’s falsifications were carried out at the instruction of the employer or the employer’s agents, the employer cannot be exonerated by the fact that the employee physically entered the erroneous hours into the timesheets. As the district court emphasized, Kuebel admits that it was he who falsified his timesheets, notwithstanding B & D’s official policy requiring accurate recordkeeping. But his testimony—which must be credited at the summary judgement stage—was that he did so because his managers instructed him not to record more than forty hours per week. He specifically testified that at company meetings and during discussions with one of his supervisors, it was conveyed to him that he was not to record overtime no matter how many hours he actually worked. In other words, Kuebel has testified that it was B & D, through its managers, that caused the inaccuracies in his timesheets. While ultimately a factfinder might or might not credit this testimony, that is a determination for trial, not summary judgment. In sum, we hold that because Kuebel has presented evidence indicating that his employer’s records are inaccurate—and that although it was he who purposefully rendered them inaccurate, he did so at his managers’ direction—the district court should have afforded Kuebel the benefit of Anderson’s “just and reasonable inference” standard. See Allen, 495 F.3d at 1317–18 (finding just and reasonable inference standard applicable at summary judgment where plaintiffs had not recorded overtime, but “testified that they were discouraged from accurately recording overtime work on their time sheets, and were encouraged to falsify their own records by submitting time sheets that reflected their scheduled, rather than actual, hours”). A contrary conclusion would undermine the remedial goals of the FLSA, as it would permit an employer to obligate its employees to record their own time, have its managers unofficially pressure them not to record overtime, and then, when an employee sues for unpaid overtime, assert that his claim fails because his timesheets do not show any overtime.”
Given the procedural posture of the case, the court found that Plaintiff had presented an issue of fact for the jury to decide, thus rendering summary judgment inappropriate, reasoning:
“Ultimately, the dispute as to the precise amount of Kuebel’s uncompensated work is one of fact for trial. As stated above, a plaintiff establishes a violation of the FLSA by proving that he performed uncompensated work of which his employer was or should have been aware. The Anderson test simply addresses whether there is a reasonable basis for calculating damages, assuming that a violation has been shown. Brown, 534 F.3d at 596. It does not entitle an employer to summary judgment where the employee’s estimates of his uncompensated overtime are somewhat inconsistent.
The district court further held that, in any event, the following evidence was sufficient to “negate the inference that [Kuebel] had performed work off-the-clock”: (1) B & D’s written policies and training materials stating that time worked must be accurately recorded; (2) Kuebel’s own time records; and (3) Beacon reports for Kuebel showing low in-store hours. Kuebel II, 2010 U.S. Dist. LEXIS 46533, at *39–40. We disagree. B & D’s evidence raises factual and credibility questions for trial, but it does not afford a basis for summary judgment. First, while the existence of B & D’s official policies requiring accurate timekeeping may detract from Kuebel’s credibility, it does not entitle B & D to judgment as a matter of law in light of Kuebel’s testimony that he was instructed by his managers not to record all of his hours. Second, that Kuebel’s timesheets do not show any overtime does not resolve the central question necessitating a trial, which, as we have seen, is whether Kuebel worked overtime but did not record it at his managers’ behest. Finally, to the extent that Kuebel’s Beacon hours—or, for that matter, his manager’s testimony that the condition of his stores was often subpar—suggest that Kuebel typically worked less than forty hours a week, such evidence also raises a factual issue for trial.”
Similarly, the court held that Plaintiff had created an issue of fact despite Defendant’s contention that it lacked knowledge of any unrecorded off-the-clock hours allegedly worked by Plaintiff, stating:
“We conclude that Kuebel has raised a genuine issue of material fact as to whether B & D knew he was working off the clock. Kuebel testified that on several occasions, he specifically complained to his supervisor, Davolt, that he was working more than forty hours per week but recording only forty. The district court discounted Kuebel’s testimony, relying on the fact that he never lodged a formal complaint using B & D’s anonymous reporting hotline. Id. at *44–45. But while that fact might conceivably hurt Kuebel’s credibility at trial, it does not warrant summary judgment for B & D.”
While it remains to be seen whether Plaintiff will actually prevail on his claims, given the FLSA’s non-delegable duty on employers, there can be little question that the Second Circuit reached the correct conclusion in holding that an employer who requires an employee to falsify his or her time records may not then benefit from such falsification. Stay tuned to see how this one turns out…
Click Kuebel v. Black & Decker Inc. to read the entire opinion.
8th Cir.: DOL’s 20% Rule, As Applicable to Tipped Employees Entitled to “Chevron” Deference; Relaxed Evidentiary Burden on Employees, Where Employer Failed to Maintain Proper Records Distinguishing Between Tipped and Non-Tipped Duties
Fast v. Applebee’s International, Inc.
This case was before the Eighth Circuit on Applebee’s interlocutory appeal of the district court’s denial of its motion for summary judgment. The primary issue in the case was how to properly apply the “tip credit” to employees whom both sides agree are “tipped employees” but who perform both tipped and non-tipped (dual) jobs for the employer. Relying on 29 C.F.R. § 531.56(e), the district court applied the so-called 20% rule promulgated by the D.O.L., requiring an employer to pay a tipped employee regular minimum wage to employees who spend more than 20% of their work time in a given week performing non-tipped duties. Applebee’s challenged the ruling and asserted that the “dual job” regulations were inconsistent with 29 U.S.C. § 203(m) or the FLSA. Affirming the decision below, the Eighth Circuit held that the D.O.L.’s regulations were entitled to “Chevron” deference and explained:
“Applebee’s argues that neither the statute nor the regulation places a quantitative limit on the amount of time a tipped employee can spend performing duties related to her tipped occupation (but not themselves tip producing) as long as the total tips received plus the cash wages equal or exceed the minimum wage. The regulation, to which we owe Chevron deference, makes a distinction between an employee performing two distinct jobs, one tipped and one not, and an employee performing related duties within an occupation “part of [the] time” and “occasionally.” § 531.56(e). By using the terms “part of [the] time” and “occasionally,” the regulation clearly places a temporal limit on the amount of related duties an employee can perform and still be considered to be engaged in the tip-producing occupation. “Occasionally” is defined as “now and then; here and there; sometimes.” Webster’s Third New Int’l Unabridged Dictionary 1560 (1986); see also United States v. Hackman, 630 F.3d 1078, 1083 (8th Cir. 2011) (using dictionary to determine ordinary meaning of a term used in the commentary to the United States Sentencing Guidelines). The term “occasional” is also used in other contexts within the FLSA, such as in § 207, which allows a government employee to work “on an occasional or sporadic basis” in a different capacity from his regular employment without the occasional work hours being added to the regular work hours for calculating overtime compensation. See 29 U.S.C. § 207(p)(2). The DOL’s regulation defines occasional or sporadic to mean “infrequent, irregular, or occurring in scattered instances.” 29 C.F.R. § 553.30(b)(1). Thus, the DOL’s regulations consistently place temporal limits on regulations dealing with the term “occasional.”
A temporal limitation is also consistent with the majority of cases that address duties related to a tipped occupation. The length of time an employee spends performing a particular “occupation” has been considered relevant in many cases. For example, even when the nontip-producing duties are related to a tipped occupation, if they are performed for an entire shift, the employee is not engaged in a tipped occupation and is not subject to the tip credit for that shift. See, e.g., Myers v. Copper Cellar Corp., 192 F.3d 546, 549-50 (6th Cir. 1999) (noting that 29 C.F.R. § 531.56(e) “illustrat[es] that an employee who discharges distinct duties on diverse work shifts may qualify as a tipped employee during one shift” but not the other and holding that servers who spent entire shifts working as “salad preparers” were employed in dual jobs, even though servers prepared the very same salads when no salad preparer was on duty, such that including salad preparers in a tip pool invalidated the pool); Roussell v. Brinker Int’l, Inc., No. 05-3733, 2008 WL 2714079, **12-13 (S.D. Tex. 2008) (employees who worked entire shift in Quality Assurance (QA) were not tipped employees eligible to be included in tip pool even though servers performed QA duties on shifts when no QA was working; court “agrees that such work likely can be considered incidental to a server’s job when performed intermittently,” but distinguished full shifts). The same is true of nontipped duties performed during distinct periods of time, such as before opening or after closing. See Dole v. Bishop, 740 F. Supp. 1221, 1228 (S.D. Miss. 1990) (“Because [the] cleaning and food preparation duties [performed for substantial periods of time before the restaurant opened] were not incidental to the waitresses’ tipped duties, the waitresses were entitled to the full statutory minimum wage during these periods of time.”). Conversely, where the related duties are performed intermittently and as part of the primary occupation, the duties are subject to the tip credit. See, e.g., Pellon v. Bus. Representation Int’l, Inc., 528 F. Supp. 2d 1306, 1313 (S.D. Fla. 2007) (rejecting skycap employees’ challenge to use of the tip credit where “the tasks that allegedly violate the minimum wage are intertwined with direct tip-producing tasks throughout the day”), aff’d, 291 F. Appx. 310 (11th Cir. 2008).
Because the regulations do not define “occasionally” or “part of [the] time” for purposes of § 531.56(e), the regulation is ambiguous, and the ambiguity supports the DOL’s attempt to further interpret the regulation. See Auer, 519 U.S. at 461. We believe that the DOL’s interpretation contained in the Handbook—which concludes that employees who spend “substantial time” (defined as more than 20 percent) performing related but nontipped duties should be paid at the full minimum wage for that time without the tip credit—is a reasonable interpretation of the regulation. It certainly is not “clearly erroneous or inconsistent with the regulation.” Id. The regulation places a temporal limit on the amount of related nontipped work an employee can do and still be considered to be performing a tipped occupation. The DOL has used a 20 percent threshold to delineate the line between substantial and nonsubstantial work in various contexts within the FLSA. For example, an “employee employed as seaman on a vessel other than an American vessel” is not entitled to the protection of the minimum wage or overtime provisions of the FLSA. See 29 U.S.C. § 213(a)(12). The DOL recognized that seamen serving on such a vessel sometimes perform nonseaman work, to which the FLSA provisions do apply, and it adopted a regulation that provides that a seaman is employed as an exempt seaman even if he performs nonseaman work, as long as the work “is not substantial in amount.” 29 C.F.R. § 783.37. “[S]uch differing work is ‘substantial’ if it occupies more than 20 percent of the time worked by the employee during the workweek.” Id. Similarly, an employee employed in fire protection or law enforcement activities may perform nonexempt work without defeating the overtime exemption in 29 U.S.C. § 207(k) unless the nonexempt work “exceeds 20 percent of the total hours worked by that employee during the workweek.” 29 C.F.R. § 553.212(a). And an individual providing companionship services as defined in 29 U.S.C. § 213(a)(15) does not defeat the exemption from overtime pay for that category of employee by performing general household work as long as “such work is incidental, i.e., does not exceed 20 percent of the total weekly hours worked.” 29 C.F.R. § 552.6. The 20 percent threshold used by the DOL in its Handbook is not inconsistent with § 531.56(e) and is a reasonable interpretation of the terms “part of [the] time” and “occasionally” used in that regulation.”
Determining that the issue was not properly before it, the court declined to answer the question of what duties are incidental to the tipped employee duties and what duties are not, stating:
“We note that the parties dispute which specific duties are subject to the 20 percent limit for related duties in a tipped occupation and which duties are the tip producing part of the server’s or bartender’s tipped occupation itself. The regulation lists activities such as “cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses” as “related duties in . . . a tipped occupation.” § 531.56(e). The Handbook repeats these examples and states that the 20 percent limit applies to “general preparation work or maintenance.” (Appellant’s Add. at 32, DOL Handbook § 30d00(e).) Although the district court stated that “it was for the Court to decide what duties comprise the occupation of a server or bartender” (Dist. Ct. Order at 6 n.3), the order under review did not do so and concluded only that “[e]mployees may be paid the tipped wage rate for performing general preparation and maintenance duties, so long as those duties consume no more than twenty percent of the employees’ working time” (id. at 15). To the extent that questions remain concerning which duties the 20 percent rule applies to, those issues are beyond the scope of this interlocutory appeal, and we do not address them. We hold only that the district court properly concluded that the Handbook’s interpretation of § 531.56(e) governs this case.”
Lastly, citing the Supreme Court’s Mt. Clemens decision, the court held that the “recordkeeping rule” applies in situations where the employer fails to maintain sufficient records to distinguish between time spent performing tipped duties and non-tipped duties.
Click Fast v. Applebee’s International, Inc. to read the entire decision.
WHD Proposes Update To FLSA Recordkeeping Requirements With “Right To Know Under The Fair Labor Standards Act” Regulation
According to the DOL’s Fall 2010 Semi-Annual Agenda, the Wage and Hour Division of the Department of Labor (WHD), intends to issue updated FLSA recordkeeping requirements in the near future.
Several of the initiatives the department is considering could have major impacts on both employees and employers.
For example, the WHD is considering a proposed rule that would require covered employers to notify workers of their rights under the FLSA, and to provide information concerning hours worked and wage computation, similar to the Wage and Hour laws some states like New York and California already have on the books.
Under the proposed rule, employers would be required to perform a written classification analysis for every worker that is excluded from FLSA coverage. In addition, the employer would have to disclose the individual analysis to each worker, and retain the documents in the event of a WHD investigation.
Thanks to Valiant for alerting us to this significant development.
Overtime Law Blog 