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We published a shorter version on this topic in a previous blog post. You can also find this article published on Law360.com.

In the last few months, there has been a rash of federal court lawsuits across the country in which nonexempt employees have alleged that their employers have failed to pay them and their co-workers for off-the-clock work. These employees have sought overtime pay for work performed in addition to their weekly 40 hours of on-the-clock work. Recent court cases that have alleged employer knowledge of off-the-clock work include companies such as Michaels Stores Inc., Peloton Interactive Inc., Wells Fargo Bank NA, BOK Financial Corp, NCR Corp. and Liberty Mutual Group Inc., just to name a few.[1]

Employers are often flabbergasted to discover their nonexempt employees have been working very early mornings, during meal breaks, late nights or weekends off-the-clock. Apparently, no one in management asked or knew that off-the-clock work had occurred.

Here are a few scenarios:

  1. Employees were told not to work more than 40 hours per week, but also understood they had to complete all their work by the end of their shift;
  2. Employees clocked out for an extended meal period, but continued to read emails, take phone calls, send texts or work while on break;
  3. Incompetent employees were not able to complete their tasks in 40 hours but did not want anyone to know, so they worked extra hours off the clock before others arrived at work or after everyone was gone for the day;
  4. Without telling anyone, employees worked weekends and/or nights at home; or
  5. Employees loved their employer and thought they were helping to make the company better by donating extra hours to get the job done.

In each of the above scenarios, no manager knew that off-the-clock work had happened. So does the law require that employers pay employees for off-the-clock time if management did not know any work was being done? As always, there is no easy answer.

The federal Fair Labor Standards Act states that an employer “employs” an employee when that employee is suffered or permitted to work. But what does that mean? The U.S. Court of Appeals for the Eleventh Circuit made it simple. In 2007, in Allen v. Board of Public Education for Bibb County, the appeals court ruled that an employee is “suffered or permitted to work” if “(1) he or she worked overtime without compensation and (2) the [employer] knew or should have known of the overtime work.”

The court also stated: It is not relevant that the employer did not ask the employee to do the work. The reason that the employee performed the work is also not relevant. “[I]f the employer knows or has reason to believe that the employee continues to work, the additional hours must be counted.”

If employers do not have actual or constructive knowledge of an employee’s overtime, it sounds like they are not required to pay overtime benefits. However, employees who sue for unpaid wages do not need to offer much in the way of evidence to create a factual dispute that will require that a jury decide whether their employer had actual or constructive knowledge of their off-the-clock work.

For example, in the 2016 case of Lopez-Easterling v. Charter Communications LLC, a U.S. District Court for the Northern District of Alabama judge decided that he could not toss the case but needed to send it to trial, even though the manager for the defendant testified that he was unaware of any overtime worked by the employee. To rebut this, the employee simply testified that the manager did have knowledge.

Similarly, in the Allen case discussed above, the appellate court held that the trial judge should not have dismissed the case without a trial for some of the employees who “testified that their supervisors were aware of their work beyond their scheduled hours.” Even though the employer disputed the employee’s contentions, the employer “expended a significant amount of time and resources training the employees on how to properly record and turn in their time sheets,” and the employees turned in time sheets reflecting that they did not work overtime.

Two cases out of the U.S. District Court for the Southern District of Florida should give employers concern. In Smith v. Therapies 4 Kids Inc., the court in 2021 refused to toss a case where the employee testified that the employer had knowledge that her job could not be completed in 40 hours. And in Gilbert v. City of Miami Gardens, the court decided in 2014 that a jury trial was necessary where the employee testified that her manager gave her permission to come in 30 minutes before her shift, knew she worked through lunch, maintained a heavy workload and security access records showed that she worked more hours than she had reported.

Bottom line, if an employer does not have actual knowledge, or with reasonable diligence could not have constructive knowledge of an employee’s off-the-clock work, the law says the employer is not required to pay for that time. However, there is often a factual dispute about whether an employer knew or should have known about an employee’s off-the-clock work. This may well require that a jury resolve the facts.

Given the cost of FLSA litigation, many employers look for a practical business solution. If an employee makes an internal complaint, the employer has an opportunity to review the facts. If satisfied that the employee did work off the clock, the employer can fix the issue by paying for the time worked. The surprise comes when a proposed class action is served and the employer has less opportunity to resolve the problem in short order.

In order to avoid an off-the-clock lawsuit, employers should take proactive measures:

  1. Training:  Employers should train all managers, especially front-line supervisors, that off-the-clock work will not be condoned. The message needs to be clear that a “see no evil, hear no evil, speak no evil” approach to employees’ off-the-clock work is not acceptable. Managers must be vigilant in keeping track of all time that’s being worked, and if they suspect work is being done outside of normal work hours, it needs to be promptly investigated. If confirmed, managers need to report the time worked and ensure that employees are paid. Front-line supervisors and junior managers must work with human resources and senior management to address the reasons for the occurrences and implement solutions to avoid further off-the-clock work.
  2. Employee Orientation: As part of their orientation, nonexempt employees should be explicitly told to work only on the clock and need to understand what this means. If the job requires working at home, at odd hours, at times away from the office or through an otherwise unpaid meal period, employers need to be clear that those hours need to be reported and, if reported, will be paid. By the same token, if jobs do not require such work, then employers need to be clear that employees must not take it upon themselves to perform such work — even to “volunteer” to help the company — without first obtaining advance permission to do so.
  3. Written Policy: The company handbook should reiterate the prohibition of off-the-clock work. No employee is to work off the clock, even if that directive is given by a supervisor or manager, absent the need to perform work in a true emergency situation. Instead, the policy needs to direct the employee to contact human resources or a more senior manager immediately and to refrain from working.
  4. Communication: Managers need to establish a positive rapport with those they supervise so that employees will let managers know if their workload requires them to work overtime on pending matters. Managers may then authorize the work as paid overtime. Alternatively, managers can decide to assign the work to others who have the capacity to do so during their normal work hours.
  5. Counseling: If nonexempt employees are discovered working off the clock, employers need to discuss the matter with the offending employees. And if there was no good reason for the work, employees need to be advised that they have violated policy and that there are consequences for having done so, even if the time worked may need to be paid. If employees have good reasons, employers can quickly remedy the issue and engage with employees about changes to job duties, workload and/or pay.

Conclusion

Even with the above measures in place, the hidden specter of off-the-clock work may still make an occasional appearance. However, taking proactive measures in limiting off-the-clock work may lead to far fewer manifestations and substantially fewer costs.

[1] Knudson v. NCR Corp., Case No. 1:22-cv-05925 (N.D. Ill, Oct. 27, 2022); Wright, et al., v. Liberty Mutual Group, Inc., Case No. 1:22-cv-11687 (D. Mass, Oct. 5, 2022); Armstrong v. Michaels Stores, Inc., 59 F.4th 1011 (9th Cir. Feb. 13, 2023); Ni v. HSBC Bank USA, N.A., (S.D.N.Y., Case No. 1:23-cv-00309-RA-KHP, Jan. 13, 2023); McKinnon v. Peloton Interactive, Inc., 2023 BL 4115 (C.D. Feb. 8, 2023); Scherer v. BOK Fin. Corp., 2023 BL 4192 (S.D. Tex., Jan. 6. 2023); Droesch v. Wells Fargo Bank, N.A., 2022 BL 447597, 2022 U.S. Dist. Lexis 225769 (N.D. Cal., Dec. 14, 2022).