I Didn’t Know Could Become A Valid Defense
‘I Didn’t Know’ About Overtime Worked is Potentially a Valid Defense
Suppose an employee is nonexempt and that employee works over 40 hours per week. The employee is entitled to overtime. An easily overlooked question is, what if the employer didn’t know an employee was working overtime? A 6th U.S. Circuit Court of Appeals decision considered that question.
Donna Craig was hired as a bookkeeper for Bridges Brothers Trucking LLC in Columbus, Ohio, in October 2010. In that capacity, she regularly worked more than 40 hours per week processing payroll, invoicing and billing, and reconciling bank statements. Craig and other Bridges Brothers employees created detailed time sheets documenting their weekly hours worked. As found by the appeals court, Craig “meticulously documented and reported her time.”
As a bookkeeper, Craig was responsible for collecting the company’s time sheets and entering the data into payroll software. Owing to her belief that she was ineligible for overtime, Craig failed to enter an overtime rate of pay for herself during most of her tenure. As such, she received only her straight time, paid at her regular hourly rate for all hours worked.
The company’s owner, Michael Bridges, claimed that when approving the weekly payroll, he would review a payroll summary report, which omitted detailed information on hours worked by individual employees. As a result, Bridges claimed that he was unaware of the fact that Craig had been working in excess of 40 hours per week. Craig disputed this claim and brought a lawsuit against Bridges Brothers seeking overtime wages under the Fair Labor Standards Act (FLSA) and Ohio Minimum Fair Wage Standards Act.
On cross-motions for summary judgment, the U.S. District Court for the Southern District of Ohio sided in favor of the company. The court held that, “by miscalculating her own overtime pay rate, Craig has failed to follow the reasonable time-reporting procedures established by [the employer] and … therefore thwarted the ability to comply with the FLSA.” The appeals court reversed the summary judgment in favor of Bridges Brothers, affirmed the denial of summary judgment in favor of Craig and remanded the matter for trial.
The primary issues addressed by the court were Craig’s time-reporting and Bridge Brothers’ knowledge of Craig’s hours worked. It noted that the overtime obligation arises when an employer “knows or has reason to believe” that an employee is working in excess of 40 hours per week. An employer has a reason to believe overtime hours are being worked when it “should have discovered it through the exercise of reasonable diligence.” However, the court cautioned, “reasonable diligence is not an expectation of omniscience … [and] the employee bears some responsibility for the proper implementation of the FLSA’s overtime provisions.”
The appeals court ruled that Craig’s failure to adequately report her rate of pay did not affect her overtime claim. While she may have miscalculated her pay rate, she did not miscalculate her time worked. Therefore, the appeals court concluded, it was inappropriate for the district court to conclude that, as a matter of law, Craig had purposefully failed to use a reasonable process to report time worked.
However, the appeals court also found that the district court appropriately denied summary judgment to Craig. Craig had argued that her “time sheets alone establish, as a matter of law, that she is entitled to overtime wages.” The appeals court noted a decision from a sister circuit finding that, “[a]ccess to records indicating that employees were working overtime … is not necessarily sufficient to establish constructive knowledge.” Constructive knowledge of overtime work hours based on such access may be found in some cases, “but that is not a foregone conclusion.” In light of Michael Bridges’ denial of reviewing hours-worked records, the appeals court concluded that a jury must decide whether the company was aware of the overtime hours worked.
Craig v. Bridges Bros. Trucking LLC, 6th Cir., No. 15-3396 (May 19, 2016).
Tip for Human Resources Professionals: With the new federal overtime rule scheduled to take effect in December, employers are well-advised to audit their current wage and hour practices. An increase in litigation of such issues is expected. Proper planning now can help limit your liability next year and thereafter.