DOL Issues Several Interesting Opinion Letters

Last week, the federal Department of Labor issued several Opinion Letters concerning the FLSA, regular rate and bonuses, meal breaks, time clock rounding and extra pay for exempt employees.  Such letters indicate the DOL’s official position, but it is not binding on courts.  In the first, Op. FLSA2026-5, the DOL explained that an exempt nurse trainers could be paid an hourly rate for picking up staff nurse shifts outside their regular working hours without destroying their exempt status when their primary duties remained their exempt work and the extra non-exempt shifts constituted less than 50% of the hours worked that week. In the next Opinion Letter FLSA2026-6, the DOL explained that employers need not recalculate the regular rate each quarter when providing non-discretionary bonuses that are based on the employee’s total earnings (i.e., straight and overtime) in a way that does not dilute their overtime earnings.  In another Opinion Letter FLSA2026-7, the DOL explained that an employer need not pay its employees for 30 minute meal breaks during which the employee is relieved of work responsibilities even if that is insufficient time to depart a corporate campus to travel off-site for more than 15 minutes.    In the final Letter FLSA2026-8, the DOL questioned the employer’s practice of rounding employees’ work time to the beginning or end of their scheduled shift, whether it might not be compensating all employees for certain “integral and indispensable” pre-shift activities, and whether the founding was neutral de minimis, but agreed that the employer need not compensate employees for waiting to clock in and out as long as it was before or after their principal work activity.

In the first opinion, exempt Nursing Professional Development Specialists are involved in the professional development and training of staff.  While they may assist in their discretion patients and staff nurses, they are never the patient’s primary nurse.   Some of these exempt employees sometimes pick up one or two non-exempt Staff Nurse shifts outside their normal working hours (i.e., on weekends).  Staff Nurses are paid on a hourly basis and the Specialists are  paid this same hourly rate when they pick up Staff Nurse shifts.   The DOL observed that the FLSA regulations permit employers to pay exempt employees an extra hourly rate when they work extra hours outside their normal work schedule without losing the exemption.  Further, the DOL also observed that the FLSA regulations also permit exempt employees to perform some non-exempt work as long as their exempt duties remain their primary duties, or most important part of their job.  Typically, if the employees spends at least 50% of their time on their primary exempt duties, the position will remain exempt, but it remains possible that an employee will remain exempt even if their exempt duties take less than 50% of their time.  Thus, in this case, the Specialists still spent more than 50% of their time performing exempt work and were permitted to receive additional hourly compensation for their extra work. 

In the next Opinion, the DOL addressed a quarterly profit bonus paid to non-exempt employees that was based solely on their respective percentage of straight and overtime hours worked.  In other words, the $100K, was divided among the employees at the end of the quarter based on their respective, comparative percentage of hours worked (both straight time and overtime). Their overtime hours were not diluted by other types of compensation (such as discretionary bonuses, expenses, gifts, benefits, etc.). 

Nevertheless, recomputation of an employee’s regular rate and the resulting additional overtime pay are unnecessary for a “percentage of total earnings” bonus, although they may be required for other types of bonuses. Assuming “total earnings” is the sum of an employee’s total straight-time earnings and total overtime earnings, a percentage of total earnings bonus is a bonus payment that provides for “the simultaneous payment of overtime compensation due on the bonus” (i.e., its own required overtime compensation). 29 C.F.R. § 778.210; see also id. § 778.503. This is not an exception to the FLSA’s overtime pay requirement, but the Division’s longstanding recognition that a bonus that increases an employee’s total earnings by a fixed percentage “increases both straight time and overtime wages by the same percentage, and thereby includes proper overtime compensation as an arithmetic fact.” Id. § 778.503; see also id. § 778.210 (explaining that such percentage of total earnings bonuses “satisfy in full the overtime provisions of the Act and no recomputation will be required”); Brock v. Two R Drilling Co., 789 F.2d 1177, 1179 (5th Cir. 1986). Requiring additional overtime pay for such bonuses “would be to impose overtime upon overtime,” and, therefore, be inconsistent with the Act. Siomkin v. Fairchild Camera & Instrument Corp., 174 F.2d 289, 294 (2d Cir. 1949).

Employers generally calculate total earnings bonuses in one of two ways. The first, as described in 29 C.F.R. § 778.210, occurs when an employer applies a percentage to an employee’s total straight-time and overtime earnings directly without regard to how the employee’s earnings or hours compare to those of other employees. The second takes place when an employer uses earnings or hours to compare each employee participating in a bonus pool to all the employees participating in the bonus pool. . . . an employer may divide each employee’s total earnings by the total earnings of all employees participating in the bonus pool and then multiply that percentage by the bonus pool amount to determine each employee’s share.  Or, as provided in FOH 32c05a, an employer may divide the bonus pool amount by the participating employees’ total earnings and then multiply that percentage by each employee’s total earnings to determine his or her bonus payout. Either approach is acceptable.

Generally, an employer may consider additional factors (such as seniority, work location, job title, base pay, performance, or conduct) to determine the magnitude of an employee’s percentage increase. As long as the resulting percentage increase to each employee’s pre-bonus overtime earnings is no less than the percentage increase to their pre-bonus straight-time earnings, then the principle set forth in sections 778.210 and 778.503 applies even though different employees might receive different percentages. However, an employer may not use the percentage of total earnings bonuses “to evade the overtime requirements of the Act[,]” 29 C.F.R. § 778.210, such as where the percentage bonus “decrease[s] . . . in direct proportion to increases in the number of hours worked in a week in excess of 40.” See id. § 778.503.4 An employer also may not dilute an employee’s overtime earnings by either: (1) applying a higher percentage increase to the straight time earnings than the overtime earnings5 or (2) including items within an employee’s earnings that were previously excluded from the employee’s regular rate of pay, such as gifts, discretionary bonuses, expense reimbursements, or employer contributions to employee benefit plans.

In another opinion, the employees are given 30-minute unpaid lunch breaks where they are relieved of their job duties.  They apparently have a break room which they may use for such purpose.  However, it takes at least 5-10 minutes to get through security to leave the building and walk to the parking lot, and then another 10 minutes to get back through security and return from the parking lot, leaving little, if any time, to travel to nearby restaurants for lunch.   The DOL first observed that employers are not required by the FLSA to provide meal or rest breaks to adults.   Meal breaks need not be compensated, but they must be bona fide breaks from work. Typically, thirty minutes or more is sufficient to constitute a bona fide meal break.  The DOL has since at least 2004 indicated that employers can prohibit employees from leaving the premises during their meal breaks without having to compensate employees for the meal breaks. 

The Act does not require absolute freedom for a break to be bona fide and non-compensable. An employer may place certain limitations or conditions upon a bona fide meal period without having to compensate employees for such time, and courts have agreed that employees need not be permitted to leave the premises to receive a bona fide meal period. For example, in Ruffin v. MotorCity Casino, 775 F.3d 807 (6th Cir. 2015), the Sixth Circuit ruled that meal breaks for casino security guards were not compensable under the FLSA because even though they were not permitted to leave the premises and were required to monitor their radios, they were otherwise free to eat and socialize.

In the final letter, the employer had a practice of permitting employees to clock in or out up to seven minutes before or after their shift because of potential wait times at the time clock so that they would not be assessed with tardies or unauthorized overtime.  However, the employer also had a practice of rounding those employees’ work hours to the nearest shift.  For instance, if an employee clocked in at 6:53 for a 7:00 shift, he or she would only be credited with having worked at 7:00.     Similarly, if the employee clocked out at 7:07 when the shift ended at 7:00, the time would be rounded down to 7:00. However, and importantly, if an employee clocked in late or clocked out early, the employer did NOT indicate that it would round down to the nearest shift.  The employer admitted that some employees sometimes immediately began engaging in integral and indispensable pre-shift activities, even when they clocked in early.   The DOL did not think that the de minimis doctrine applied because the employer was capable of administratively capturing this pre-shift work and the rounding practice was not neutral (i.e., it always benefitted the employer).  “The de minimis doctrine “applies only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities.”  Further, “’[w]hether time is de minimis is a fact-specific analysis, considering the practical administrative difficulty of recording the time, the aggregate amount of compensable time involved, and the regularity with which the work occurs.”

The Department’s regulations explain that employers may practice time rounding, but only under specific conditions. Under 29 C.F.R. § 785.48, employers may round employee time to the nearest fraction of an hour (such as the nearest 5 minutes, 6 minutes, or quarter-hour). This practice, however, is only acceptable if it “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” 29 C.F.R. § 785.48(b). This means a rounding practice must both be neutral on its face and average out over time so it does not consistently favor the employer. . . .

When evaluating rounding practices to apply these principles, courts examine the aggregate impact over a period of time. While fluctuation from pay period to pay period is to be expected, a neutral rounding practice must “average out in the long term.” Corbin, 821 F.3d at 1077. For example, an employer’s rounding practices were found to be permissible where the pay records showed that “sometimes [the employee] gained minutes and compensation, and sometimes [the employee] lost minutes and compensation,” and the net difference between hours worked and hours compensated amounted to only 3 minutes and $15 over about a year. Id. at 1079. In contrast, an appeals court reversed a lower court’s conclusion that an employer’s practice was neutrally applied when evidence showed that its practices cost roughly 13,000 employees approximately 74,000 hours of uncompensated time over a 6-year period. Houston, 76 F.4th at 1152. Similarly, another court found an employer’s rounding policy was likely not neutrally applied when evidence showed that it favored the employer 94 percent of the time. Aguilar, 948 F.3d at 1288.

 . . .

To the extent that each day, employees are performing compensable work prior to their paid shifts commencing, such work is unlikely to be de minimis. In general, as noted above, “[a]n employer may not arbitrarily fail to count as hours worked any part, however small, of the employee’s fixed  . . . .

Conversely, to the extent that pre-shift compensable work is irregular, the practical administrative difficulty of recording the time may justify treating it as de minimis. Although the employer has a timekeeping system that is capable of documenting the time of arrival and departure, we cannot definitively say, based on the information provided, whether it is administratively feasible for the employer to record the actual time each employee performs their first principal activity—thus beginning their compensable workday—as opposed to engaging in personal activities such as getting coffee, socializing, checking phones, storing personal belongings, or simply waiting for their shift to start. Given, as noted above, the large number of hospital employees and the likely differences between the extent to which they are, or are not, on a consistent basis performing principal activities between clocking in and the formal start to their shift, we are unable to conclude that the time is—or is not—de minimis. . . .

Employers, including the hospital at issue here, should nonetheless be particularly careful about how and to what extent they apply the de minimis doctrine. Particularly given the technological advances that have made it possible for employers to track employees’ work time with increasing precision, employers should expect exacting scrutiny of de minimis claims where employees perform off-the-clock work with any degree of regularity.

In this case, the employer’s rounding always seemed to reduce the employees’ pay and was always in favor of the employer in rounding up or down. Thus, “the critical question under 29 C.F.R. § 785.48(b) is whether a rounding practice, evaluated over a period of time, is facially neutral and operates neutrally such that it does not systematically undercompensate employees for hours worked.”   The DOL could not definitely determine whether the employer was complying or not with the FLSA because of missing factual realities:

We note initially that a rounding policy for clock-in and clock-out time only affects the calculation of hours worked to the extent that employees are performing compensable work between the clock in/out time and the rounded time. As noted above, clocking in or out, by itself, is generally not considered compensable work. Likewise, the time between clocking in and beginning principal activities, and between completing principal activities and clocking out, is also not compensable. . . .

As to the beginning of the day, if employees are, in fact, performing compensable work—such as respiratory therapists receiving handoff reports—after clocking in but before their paid shifts, then based strictly on the information provided, the hospital’s rounding policy is not neutral pursuant to 29 C.F.R. § 785.48(b) because it both is not facially neutral and only ever benefits the employer without ever benefiting the employee. According to the facts presented, the employer’s only rounding practice is to round early check-ins to the scheduled shift time. As a result, employees  who perform compensable work during the up-to-7-minute early check-in period are always uncompensated for that time and are not afforded a chance for over-compensation to average that time. Accordingly, under these facts, the hospital’s rounding practice is inconsistent with section 785.48(b) and would result in a failure to properly record, as well as potentially to properly compensate for, all hours worked. If, however, the hospital’s rounding practice is facially neutral and operates such that employees can and actually do benefit from rounding in other circumstances—for example, if employees who clock in up to 7 minutes late are nonetheless credited with starting at their scheduled time and that practice averages out over time to offset any work time lost due to the rounding of early check-ins to the scheduled shift time—then the policy would likely comply with section 785.48(b).

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 change or be 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.

Sixth Circuit Finds FLSA Overtime Claim of Gas Station Manager to be Empty

Earlier today, the Sixth Circuit Court of Appeals in Cincinnati affirmed the dismissal on summary judgment of a FLSA overtime claim brought by a former store manager for Speedway SuperAmerica on the grounds that she was an exempt managerial employee. Thomas v. Speedway SuperAmerica LLC, No. 06-3768 (10/30/07). The manager (terminated in 2003 before the new FLSA exempt regulations were promulgated in August 2004) testified that she generally worked more than 50 hours each week and met with her own supervisor only once every 4-14 days.

She also testified that she “spent approximately sixty percent of her work time performing non-managerial tasks, such as stocking merchandise, sweeping floors, cleaning bathrooms, operating the register, and performing routine clerical duties. Even though [she] devoted a majority of her time to nonmanagerial activities, she testified that her “primary duty was to manage [her] store,” which required her to perform many management functions. She supervised, interviewed, hired, trained, and disciplined employees; she prepared weekly work schedule for her employees; she resolved employee complaints; she monitored her employees’ performance with formal evaluations; she recommended salary or merit increases for her employees (most of which were accepted by her district manager); she frequently recommended employee terminations to her district manager; and she even terminated some employees without prior approval from her district manager (although she would later notify her district manager of these unilateral termination decisions).

Because the plaintiff earned a base salary of $522 per week, the court applied the “short test” under the old FLSA regulations to determine whether she was a bona fide executive employee. “An employee qualifies for the executive exemption under the short test if: (1) her “primary duty consists of the management of the enterprise” and (2) her primary duty “includes the customary and regular direction of the work of two or more other employees.”

The central issue in the case was whether the plaintiff “had management as her primary duty. Numerous courts have addressed this issue in factually similar cases, and all have held that the plaintiff’s primary duty consisted of management.” In reviewing prior cases, the court stressed that it could not simply “rely upon the plaintiff’s or the employer’s description of the plaintiff’s position or authority; instead we must “look at the plaintiff’s actual duties” to determine whether she qualifies for the executive exemption.” “’Primary duty’ does not mean the most time-consuming duty; it instead connotes the “principal” or ‘chief’ — meaning the most important — duty performed by the employee. . . . Nevertheless, “[t]he amount of time spent in performance of . . . managerial duties is a useful guide in determining whether management is the primary duty of an employee.”

“[I]n situations where the employee does not spend over 50 percent of [her] time in managerial duties, [she] might nevertheless have management as [her] primary duty if the other pertinent [factors] support such a conclusion.” 29 C.F.R. § 541.103 (2003). These factors include: (1) “the relative importance of the managerial duties as compared with other types of duties”; (2) “the frequency with which the employee exercises discretionary powers”; (3) “[the employee’s] relative freedom from supervision”; and (4) “the relationship between [the employee’s] salary and the wages paid other employees for the kind of nonexempt work performed by [her].”

Under the first factor, the court “compare[d] the importance of the plaintiff’s managerial duties with the importance of her non-managerial duties, keeping in mind the end goal of achieving the overall success of the company.” In analyzing that first factor, the court compared the plaintiff’s non-managerial duties (which included stocking merchandise, sweeping floors, and cleaning bathrooms) with her managerial duties (which include hiring employees, training employees, and assigning the weekly work schedule) . The court observed that if the plaintiff failed to perform her nonmanagerial duties, the station would still function, albeit much less effectively. If, on the other hand, she failed to perform her managerial duties, the station would not function at all because no one else would perform these essential tasks.

The second factor examines “the frequency with which the employee exercises discretionary powers” or “the prevalence or regularity of the plaintiff’s discretionary decisions.” The court noted that an “employee’s exercise of discretion over matters of importance strengthens the employer’s showing under the second factor.” Even though her district manager was available by phone and frequently visited, he was not present enough to remove the plaintiff’s regular discretion in managing the station.

“The third factor considers the employee’s ‘relative freedom from supervision.’ [The plaintiff] was the most senior employee at her station; no other on-site employee was her equal. Thus, on a day-today basis, she generally operated without a supervisor looking over her shoulder, monitoring her every move.” “A ‘local store manager’s job is [no] less managerial for FLSA purposes simply because . . . she has an active [district manager].’” Only where the district manager was present virtually every day for several hours have courts found this factor to weigh in the employee’s favor.

The court compared the plaintiff’s salary to her subordinate employee’s wage rate in the fourth factor. Even considering the number of hours she worked, her regular salary equated to approximately 30% more than her subordinate employees without factoring in her eligibility for a monthly bonus or how much overtime the subordinates earned. Even if the subordinate’s overtime were considered, the plaintiff earned more than $7,000 more than the next highest paid employee at the store in the prior seven months. The court found that pay difference to be significant.

Finally, the court dismissed the plaintiff's claim for overtime wages under Ohio law because Ohio's overtime wage statute explicitly incorporates the FLSA exemptions. Ohio Rev. Code § 4111.03(A) (“An employer shall pay an employee for overtime at a wage rate of one and one-half times the employee’s wage rate for hours worked in excess of forty hours in one workweek, in the manner and methods provided in and subject to the exemptions of . . . the ‘Fair Labor Standards Act of 1938’”).

Insomniacs may read the full opinion at http://caselaw.lp.findlaw.com/data2/circs/6th/063768p.pdf

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. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with an attorney.