Time Card iStock_000016412520XSmall.jpgLast summer, we highlighted an example of how good recordkeeping practices can result in a favorable decision. In the Kaiser Foundation Health Plan case, the employer successfully defended an “unauthorized overtime” claim where an employee worked off the clock against Kaiser’s policies and without its knowledge. A recent Eleventh Circuit decision demonstrates the limits of relying solely on policies as a defense in these types of cases.

In Bailey v. TitleMax of Georgia, TitleMax advanced some of the same arguments as Kaiser: it maintained policies that prohibited non-exempt employees from working off the clock, required those employees to record accurate hours, and mandated that they report inaccuracies in their records; and that its employee had failed to abide by those policies. TitleMax argued that this employee misconduct completely barred any FLSA overtime claim. The Eleventh Circuit disagreed, reiterating the rule that when an employer knows or has reason to know its employee misreported his hours, it cannot escape FLSA liability by asserting equitable defenses like “unclean hands” based on that misreporting. “To hold otherwise would allow an employer to wield its superior bargaining power to pressure or even compel its employees to underreport their hours, thus neutering the FLSA’s purposeful reallocation of that power,” the appeals court held.

In its opinion, the court focused on the unequal bargaining power between employers and employees, observing that the “the prime purpose” of the FLSA is “to aid the unprotected, unorganized and lowest paid of the nation’s working population” and “to counteract the inequality of bargaining power between employees and employers.” The TitleMax supervisor “both encouraged artificially low reporting and squelched truthful timekeeping,” by instructing the employee to underreport his time and by changing his time records to show fewer hours worked. The court explained that nominally requiring employees to accurately report hours through policies is not enough when, as in TitleMax’s situation, evidence shows that supervisors encouraged employees to underreport hours in practice.

Normally, this would be the end of the inquiry, as it is in the majority of FLSA cases. However, TitleMax tried something “somewhat novel” in excusing its supervisor’s behavior: the company argued that as a matter of equity, it was entitled to summary judgment because of the employee’s own misconduct in underreporting his hours and failing to avail himself of the policies that would protect against the alleged supervisory misconduct. The Eleventh Circuit rejected TitleMax’s argument. Citing a lack of case law supporting TitleMax’s position, the court drew from the Supreme Court’s 1995 ADEA decision in McKennon v Nashville Banner Publishing Co. In McKennon, an employer had sought to use an equitable defense based on an employee’s misconduct to bar an ADEA claim. The Supreme Court had held that equitable defenses should not act as a total bar to an ADEA claim, only as relevant evidence in deciding the appropriate remedy, because of the ADEA’s deterrent purpose. The Eleventh Circuit observed that the FLSA, like the ADEA, has a deterrent purpose in remedying employer non-compliance. The court reasoned that allowing TitleMax’s equitable arguments to completely bar an FLSA claim would undermine that purpose.

Insight for Employers

The TitleMax case provides a good contrast with the Kaiser case from last year and demonstrates why these cases are so fact specific. Kaiser had told the plaintiff he was eligible to work overtime hours, had never denied his request to work overtime, had always paid him for all of the hours worked he reported, and had never told him to work off the clock. Indeed, evidence showed that Kaiser had even taken action when it learned of concerns that pharmacy employees were working off the clock. In TitleMax, evidence showed that a supervisor told the plaintiff that the company did not allow overtime pay, that the supervisor directed the plaintiff when to clock in and out (even though it did not match his hours actually worked), and that the supervisor edited his time records to decrease the number of hours he reported. Other than promulgating policies, TitleMax did not show that it had taken any steps to prohibit or discover off the clock work.

For employers, the clear message in both of these decisions is that adopting and communicating policies about accurate time reporting and off the clock work is not enough on its own to avoid liability. You must take steps to ensure your time records are complete and accurate for all non-exempt employees. For instance, consider having employees review and sign off on their time records each week, and provide them with a mechanism to edit those records or report improper actions by their supervisors, such as directions to work off the clock. Of critical importance to employers is to educate your supervisors on wage and hour law, and take great care to ensure that they do not confuse the perfectly legal practice of controlling overtime hours with the prohibited practice of requiring employees to work overtime hours without pay. If you notice unusual patterns of hours worked or you suspect that employees are working off the clock, take concrete action to discourage and end that practice.

Taking these steps may not eliminate wage and hour claims or even allow you to obtain dismissal of all such claims without a trial, but they can help. They’ll certainly leave you with better options than something “somewhat novel” with no support in the case law.