Last month, the Sixth Circuit Court of Appeals affirmed a $112K judgment for unpaid overtime to 28 restaurant employees in a lawsuit brought by the DOL, but affirmed the denial of liquidated damages based on the employer’s good faith attempt to comply with the FLSA by consulting with its CPA. Acosta v. Min & Kim Inc., No. 18-1190 (6th Cir. 3/18/19). The Court also agreed that the employer’s payroll records did not comply with the FLSA for periods under review and the DOL was entitled to estimate the amount of the unpaid overtime. Finally, the Court rejected the employer’s argument that its wages were generous by industry and minimum wage standards and none of the employees had complained. “[C]ompliance with the Act turns on dollars-and-cents calculations, not employee-satisfaction surveys.”
According to the Court’s opinion, the restaurant continued the payroll system used by the seller of the business and essentially paid the employees an individually guaranteed amount each week as long as the employee worked each shift over six days each week. However, that amount paid did not change based on the number of hours each employee worked, which averaged 52. Accordingly, when employees worked more than 52 hours in a week, they still were not paid enough more to account for overtime pay at 150% of the regular rate of pay.
An employer may lawfully do what Hur and Kim claim they did here, starting with a fixed salary and a shift schedule and working backwards to compute hourly and overtime rates. To double check the employer’s overtime math, a Department of Labor investigator would deduct a baked-in overtime premium like this from the salary before dividing that figure by total hours to figure out the regular rate. 29 U.S.C. § 207(e)(5); see 29 C.F.R. § 778.114 (prescribing total hours, including overtime, as the divisor when employers pay by shift without regard to fluctuating hours).
So where did Hur and Kim go astray? They paid the agreed-upon salary no matter how many hours an employee worked in excess of 52, unless that employee worked a full extra shift. A salary that supposedly includes overtime pay but does not vary with actual hours worked cannot include “overtime” as the Act defines it. See 29 C.F.R. § 778.310.
The employer also failed to maintain payroll records for each employee for at least three years which complied with FLSA. In light of this, the DOL was permitted to estimate the amount of overtime owed to each employee and was not required to be precise when the employer did not comply with the FLSA recordkeeping requirements:
The Act requires employers to record overtime-eligible employees’ daily and weekly hours, hourly rate of pay, daily or weekly straight-time earnings and overtime pay, and total wages per pay period. Id. § 516.2(a), (c). The Act also requires employers to record each employee’s position, full name, home address, and gender. Id. § 516.2(a).
Hur and Kim have time and payroll records for the years 2013 to 2014 and 2016 to 2017. They have no records for the two-year gap in between. That is not the only omission. Some of the records for 2013 to 2014 contain just employees’ first names and their biweekly pay, nothing more. Although other records contain more details, particularly those following the advent of the restaurant’s time clock, none of Hur and Kim’s documentation contains all of the required information for all employees. Most glaringly, Hur and Kim did not track employees’ hours at all until August 2016. That omission violates the Act by any account.
Hur and Kim try to counter this conclusion on two grounds. They first invoke an exception to the recordkeeping requirements. The Act’s implementing regulations allow employers to record employees’ normal daily and weekly hours, rather than actual hours, if the employees work a fixed schedule. Id. § 516.2(c). But the fixed-schedule exception requires employers to record employees’ “exact number of hours worked each day and each week” for every week in which they work more or less than the fixed schedule. Id. § 516.2(c)(2). Until mid-2016, however, Hur and Kim never recorded actual hours worked.
Finally, the Court rejected the employer’s argument that the employees were satisfied with their pay:
Hur and Kim note that they pay employees generously relative to the minimum wage and that not one employee complained. But each argument is beside the point. Generosity is in the eye of the beholder, in this instance the eye of the employee, which is why compliance with the Act turns on dollars-and-cents calculations, not employee-satisfaction surveys. The absence of complaints is especially unhelpful. Employees are not apt to complain when they receive the sum they bargained for, particularly when it exceeds minimum wage, and the employer’s records offer no basis for figuring out the correct pay. Recall that Hur and Kim did not know what their recordkeeping responsibilities were, as their ignorance-of-the-law defense makes plain. Still waters tell us nothing in this setting.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
