Richard D. Alaniz

Navigating the Fair Labor Standards Act (FLSA) has always been a challenge for employers. The FLSA is a comprehensive national statute governing how to properly pay employees, and it has only gotten more complicated in recent years. Fueling this increased complication, the number of cases alleging FLSA violations is steadily increasing, as well as news coverage for wage and hour issues. Plaintiffs’ attorneys are attracted to FLSA cases because they are often susceptible to class action status and the FLSA provides for liquidated (double) damages and attorneys’ fees. Through March 2014, 8,126 FLSA cases had been filed, representing a 5 percent growth over the previous year. However, in the last 15 years, FLSA cases have shot up more than 400 percent.

Companies must consider many different factors when determining whether employees are being paid correctly. Bonuses, overtime, and time spent on pre- and post-work activities can all present FLSA issues. Even when employers do everything by the book, they can still get dragged into lawsuits. Consider the case of Integrity Staffing Solutions Inc., a temporary staffing agency whose employees work in Amazon.com warehouses. Before leaving the warehouse each day, Integrity employees were required to undergo security screenings to ensure they haven’t stolen anything. Two employees claimed the time spent on security screenings, which allegedly took up to 25 minutes each day, should be compensated. The case went all the way to the U.S. Supreme Court, which ruled in December that employees were not entitled to compensation for the time involved with the screenings under the FLSA since it wasn’t part of their work duties.

Even when companies prevail in FLSA disputes, such controversies can be expensive and exhausting to manage. By understanding the issues involved and proactively planning ahead, companies can avoid problems and minimize the risks of litigation.

Federal and State Laws

The FLSA establishes federal minimum wage and overtime pay standards. It requires employers to pay employees for all time worked. The first complication inherent in the statute is that “work” is not defined. That being said, the Supreme Court has ruled that “work” is activity that is “integral and indispensable” to the employee’s principal activities, and work occurs not only when the employer has scheduled the employee to work, but also when the employer has “suffered or permitted” the employee to work. This is an expansive definition.

Further complicating the statute, the FLSA was amended in 1947 by the Portal-to-Portal Act, which specifically excludes certain activities from working time, including:

• Walking, riding, or traveling to and from the actual place where the principal work activity or activities is performed; and

• Activities that are preliminary to or come after the principal activity or activities.

Even though the Portal-to-Portal Act is almost 70 years old, in recent years, as plaintiffs’ attorneys have brought an increased number of FLSA cases, there have been a number of cases applying the Portal-to-Portal Act, including at the U.S. Supreme Court.

In addition, for employees who are nonexempt, employers must pay overtime at a rate not less than one and one-half times the regular rate of pay after 40 hours of work in a workweek. According to the U.S. Department of Labor (DOL), employers and employees can’t decide not to pay or receive overtime: “The overtime requirement may not be waived by agreement between the employer and employees. An agreement that only eight hours a day or only 40 hours a week will be counted as working time also fails the test of FLSA compliance. An announcement by the employer that no overtime work will be permitted, or that overtime work will not be paid for unless authorized in advance, also will not impair the employee’s right to compensation for compensable overtime hours that are worked.”

With limited exceptions, the FLSA also requires employers to include bonus payments as part of an employee’s regular rate of pay when determining overtime. In most circumstances, if the bonus is non-discretionary, such as a production or attendance bonus, the employer must calculate the amount of the bonus into each employee’s base rate, before calculating time-and-a-half for overtime purposes.

Some states also have their own versions of the FLSA, which may favor employees more than federal laws do. For example, in California, employees must be paid overtime at one and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours, up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek. Furthermore, employees in California must be paid double for all hours worked in excess of 12 hours in any workday, and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek. Employers need to know, not only the intricacies of the FLSA, but also how their state’s laws differ and where their state has additional requirements.

The Amazon Case

In December, the Supreme Court tackled the FLSA and the Portal-to-Portal Act. As noted above, in Integrity Staffing Solutions Inc. v. Busk, several employees argued that they should be paid for the nearly half hour they spent on security screenings after their shifts were completed. According to the employees, the screenings were conducted to prevent employee theft and so were done completely for “the benefit of the employers and their customers.”

The District Court dismissed the complaint, but the U.S. Court of Appeals for the Ninth Circuit found in favor of the workers. According to the Ninth Circuit, activities that occur after a shift and would ordinarily not be compensated should be compensable if the activities are “integral and indispensable” to an employee’s principal activities and are performed for the employer’s benefit.

The Supreme Court disagreed and found that the security screenings were not the “principal activity or activities which [the] employee is employed to perform.” According to the ruling, Integrity Staffing did not employ its workers to undergo security screenings, but rather it employed its workers to retrieve products from warehouse shelves and package those products for shipment to Amazon customers. “The Court of Appeals erred by focusing on whether an employer required a particular activity,” the justices wrote. “The integral and indispensable test is tied to the productive work that the employee is employed to perform.”

Staying in Compliance

With the rise in FLSA lawsuits and the latest ruling from the Supreme Court, employers should take time to review their current policies regarding overtime, pre- and post-work activities, and bonuses for nonexempt employees. This review should include:

• Reviewing Current Pay Policies

It’s a good idea to periodically review how employees are classified under the FLSA and how their time is being calculated and recorded. If companies haven’t done this recently, it is time to do so. This is particularly true due to the increased news attention minimum wage and other pay issues have received lately.

Together with human resources and legal counsel, employers should evaluate whether policies are up-to-date and whether those policies are being followed. It is a good idea to take this opportunity to provide additional information and training to employees, supervisors, and managers on FLSA-related matters. This review should include state and local laws, as well as federal statutes.

• Look at Pre- and Post-Work Activities

As the Amazon case demonstrated, employees must be paid for duties that are “integral and indispensable” to their jobs. If employees are required to undergo security screenings or any other pre- or post-work activities that they are not paid for, be sure that those do not qualify as critical aspects of the work they are paid to perform. The Supreme Court’s decision in Integrity Staffing was welcome, but facts specific to each employer may alter the analysis and outcome.

• Plan for Bonuses and Overtime

Overtime and bonus pay may seem relatively straightforward. However, when paying bonuses to nonexempt employees, a little more planning may be necessary. This is particularly true when non-discretionary bonuses are paid weeks or even months after the period in which they were earned. In such circumstances, employers must re-calculate overtime pay for each pay period over which the bonus was earned. Thinking through these types of issues ahead of time can head off significant trouble down the road.

Even minor errors involving the FLSA can lead to major problems for employers. By staying on top of pay issues, companies can minimize potential issues with workers, regulators, and the courts.

Publication date: 2/16/2015

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