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Employer With Flex-Time Policy Can’t Catch FLSA Break From Third Circuit

Coffee and bathroom breaks are as much a part of the modern workplace as cubicles, desks, and printer problems.  They are widely seen as a “win-win” scenario for both employees and employers.  Employees who take a few minutes every so often to relieve themselves or boost their caffeine generally report being more alert and focused when they return to their work duties, and employers receive the benefits of a more efficient workforce when employees can stretch their legs and clear their minds before diving into the next project.

Breaks also raise interesting wage and hour law issues.  The Fair Labor Standards Act broadly defines work, but federal Department of Labor (DOL) regulations include specific carve-outs for certain situations.  More generally, “[p]eriods during which an employee is completely relieved from duty and which are long enough to enable him to use the time effectively for his own purposes[,]” such as where the employee is “definitely told in advance that he may leave the job and that he will not have to commence work until a definitely specified hour has arrived[,]” are not considered hours worked.  29 C.F.R. § 785.16.  On the other hand, in the specific context of rest breaks, periods of 20 minutes or less, which “promote the efficiency of the employee and are customarily paid for as working time,” “must be counted as hours worked.”  29 C.F.R. § 785.18 (emphasis added).

In DOL v. American Future Systems, Inc., No. 16-2685 (3d Cir. Oct. 13, 2017), the Third Circuit Court of Appeals held that the FLSA requires employers to pay their employees for all breaks lasting 20 minutes or less, even where the employees used those breaks for non-working purposes.

American Future Systems (“Progressive”), which issues business publications, previously had a break policy under which employees were entitled to two paid 15-minute breaks per day.  After its owner allegedly sought legal advice and reviewed case law, the company changed its policy in 2009.  Under this new “flex-time” policy, employees could now take breaks whenever they pleased simply by logging off of their computers, then logging back in when they wanted to resume work.

Here’s the catch: the company treated all breaks as unpaid unless they lasted for less than 90 seconds.  (As the Third Circuit wryly observed, an employee who can achieve the feat of running from their workstation to the bathroom, using the bathroom, washing their hands, and returning to their workstation in less than 90 seconds more appropriately belongs playing professional sports or advertising athletic shoes than selling business publications.)  As a result, Progressive’s sales representatives were paid on average for just over five hours a day at the federal minimum wage of $7.25 per hour.

The DOL sued Progressive for minimum wage violations.  In response, the company argued that its sales reps were, by definition, not working during their break times, so they were appropriately compensated.  Progressive further claimed that the break time regulations were not owed any deference, and that any alleged unpaid time would have to be calculated on a case-by-case basis.  The district court granted summary judgment to the DOL on this issue, and Progressive appealed.

The Third Circuit unanimously affirmed.  Relying on a body of case law, past regulations, and DOL opinion letters, the Court observed that employers may choose not to provide breaks, but once they do, they must pay employees for breaks of less than 20 minutes as hours worked under the FLSA.  The Third Circuit further held that section 785.18 of the DOL regulations was entitled to the highest level of Skidmore deference because it has been in place since 1940, has been consistently interpreted over seven decades as requiring compensation, and is consistent with the statutory language and purpose of the FLSA.  The court then held that the break-specific regulation (785.18) controlled over the more general regulation (785.16) speaking to employees having freedom to do as they pleased, and held that the regulation gave no leeway to treat some breaks as paid and others as unpaid.

In other words, breaks of less than 20 minutes must be treated as paid time, full stop.  That said, employers are not completely at the mercy of their employees.  As the Third Circuit noted, employees who abuse their flex time—for example, by repeatedly taking 19-minute breaks—may still be disciplined and terminated for violating company policies.

The Third Circuit also affirmed that Progressive owed liquidated damages.  The court ruled that although Progressive’s owner sought legal advice and did research before implementing the flex-time policy, his unwillingness to disclose that advice or research findings that would suggest an objectively reasonable belief that the breaks could be uncompensated meant that Progressive could not prove that it had a good-faith belief that it was acting lawfully.

Other employers can best mitigate wage and hour law issues like this by taking two primary steps.  First, implement timekeeping policies requiring that employees track and report their hours worked, and that employees consult and obtain approval from their supervisor before working overtime.  Second, keep in mind the following mantra reminiscent of the Dos Equis ad campaign: “I don’t have to provide breaks, but when I do, I must pay employees for any break lasting less than 20 minutes.”

 

 

 

 

 

 

 

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