Bonus and Volunteer Work Counts Toward Overtime? Fourth Circuit says “No!”

Darrell VanDeusen
Darrell VanDeusen

Overreaching has become an unfortunate consequence of life these days.  Here’s one example.   The Fourth Circuit recently affirmed dismissal of a lawsuit filed by a group of Lowe’s employees who alleged that bonus payments and volunteer time should count in the calculation of overtime due them.  McPhee v. Lowe’s Home Ctrs., 2021 U.S. App. LEXIS 18076 (4th Cir. June 17, 2021).

You may recall way back in late 2017 there was a change in the tax law; a “tax-reform bill” was signed into law, with a resulting increase in take home pay for many workers.  To celebrate this auspicious event, Lowe’s announced that it was issuing a one time “tax-reform bonus” of up to $1,000, paid without qualification to more than 260,000 employees nationwide.  Lowe’s said that it was doing this in recognition of a “special occasion.”

In addition, back in 2016 Lowe’s implemented a “Give Back Time” policy that provided eligible employees with paid leave to spend time volunteering with charitable organizations of their choice. According to the court, “Lowe’s encourages employees to use Give Back Time during their workweeks to volunteer with ‘any 501(c)(3) non-profit organization’ they select (subject to limited exceptions). Lowe’s compensates hourly employees who use approved Give Back Time at 100% of their hourly base rate of pay, but the policy expressly provides that Give Back Time is not used in calculating overtime hours.

Well, no good deed goes unpunished.  A group of non-exempt claimed that Lowe’s violated the Fair Labor Standards Act (FLSA) by not including the bonus and the volunteer time worked into the employees’ “regular rate” for overtime calculations.  After the district court granted Lowe’s motion to dismiss the plaintiffs’ appealed. 

One might argue that the lawsuit evidenced a use of logic that the LSAT tries to screen out.  While putting it a bit more gently, the Fourth Circuit affirmed dismissal of the complaint.  

As to the bonuses, the FLSA provides that payments excluded from the “regular rate” are “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency.”  29 U.S.C. § 207(e)(1).  Discretionary bonuses are also excludable from the regular rate. 29 U.S.C. § 207(e)(3); 29 C.F.R. § 778.208.   

The court held that “The plain language of the statutes and regulations supports the district court’s conclusion that the payments at issue were excludable as either gifts or discretionary  bonuses. The payments were given in honor of a special occasion (passage of tax reform), they were not made pursuant to a contract or other agreement, they were not based upon the hours or wages of the employees, and they were not so substantial as to have been relied upon. Instead, the only requirement to receive the bonuses was being an employee of Lowe’s, and the payments varied based only on years with the company and part- or full-time status.”  The court also held that the passage of tax reform was a “special occasion” in this instance.

 As to Give Back Time, the employees claimed that what they did as volunteers was “work” for which they were compensated, and so it too should be included in overtime calculations. The court disagreed.  First, the non-profits – not Lowe’s – were the beneficiary of the program.  Employees could choose whether to participate.  An employee chose to work at the non-profit of their choice; they chose the number of hours they wanted to work and did so at the direction of the non-profit.  There was no allegation by the plaintiffs that Lowe’s benefited from the volunteer hours in any way.

Of note was a 2019 DOL opinion letter that stated “an employee’s time spent participating in an employer’s optional volunteer program . . . does not count as hours worked under the FLSA, so long as [the employer] does not unduly pressure its employees to participate.” DOL W&H Op. Let. FLSA 2019-2 (March 14, 2019).  “In the face of this authority,” said the court, “Appellants’ bare contentions that their service was ‘work’ was insufficient to avoid dismissal.”

What is the takeaway here?  Employers sometimes come up with good ideas that are intended to benefit something other than just the bottom line.   Unfortunately, even good intentions will not insulate you from rogue litigation. 


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