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A Better Partnership


Jun 2007
June 19, 2007

There Is No Free Lunch

One of the top issues that the U.S. Department of Labor - Wage and Hour Division reviews when it audits an employer is "unpaid time worked" or "off-the-clock work" by nonexempt employees. It's a broad category, but the most common violations are interrupted or shortened unpaid breaks, especially lunch breaks. A close runner-up is unpaid time worked just before or after the employee's shift. Placing third, but closing fast, is "homework," where the employee takes work out of the office to do at home after hours.

All of these issues relate to the wording of the Fair Labor Standards Act, which says that an employer must compensate a nonexempt employee for all time worked, even if it is not "officially authorized," if the employer or any employer agent knew or should have known that it was going on.

So what's the problem? The problem is that in many industries, especially service industries, frontline supervisors are under pressure to get the needed work done without overtime. This can lead to unrecorded time worked, either because the supervisor pressures employees not to record extra hours or because the employee doesn't want to be hassled and just doesn't record the time. In some cases, the supervisor makes deals with employees, like "work through your lunches this week while we're busy and I'll give you some paid time off next week." The WHD knows from experience that these situations are common.

The WHD also knows that many employers assume that a nonexempt employee's workday starts at the normal shift beginning and ends at the normal shift end, and that the employee takes an unpaid lunch break (normally half an hour or 1 hour). If an electronic timekeeping record shows that the employee clocked in early or clocked out late, many employers ignore this extra time on the assumption that the employee wasn't working, but spent the extra time reading the paper, socializing, or walking from workstation to time clock (none of which is required to be counted as "time worked"). Many employers don't require employees to clock out for lunch, but just deduct the normal lunch break from time worked.

The WHD officials will review these time records and interview employees as part of an audit. They will ask if employees have ever worked "off the clock" or during periods that the timekeeping system assumes they aren't working. If some employees answer yes, the WHD starts to make "back pay" calculations.

In many service industries, timekeeping has shifted to electronic time sheets kept by the employee. You might think that this would solve the problem, but it hasn't. In many cases, employees tell the WHD that they fudged their time records to avoid overtime in an effort to please or help their supervisors. The result: back pay liability.

The WHD audits comparatively few employers each year. But the risk of unpaid time liability has increased in recent years as plaintiffs' class action lawyers have discovered that these cases can be big moneymakers for them. The FLSA and most state laws allow employees to sue for violations and provide for "double damages" and recovery of the employees' attorney fees. Plaintiffs' lawyers have discovered that a lot of small violations over a long period add up to a lot of money in a class action lawsuit, and the more the employers' attorneys fight the case, the more the plaintiffs' lawyers make when the court adds up the plaintiffs' attorney fees. This is one reason why there are presently thousands of "hours worked" class actions pending in California, and why Wal-Mart and other large employers have class actions pending across the country. Another reason is that some states have specific, detailed rules on lunch and break times, with penalties for violation; these add to the "class action payoff."

What should you do? Basically, you need to make sure that your time-worked records are accurate and credible. How? Four basic steps:

  • Make sure that your employment policies strictly prohibit employees from working without recording the time, including any time worked before or after their normal work hours, during an unpaid break, or at home. Although an employee who violates the policy by performing off-the-clock work must be paid, the employer does have the right to discipline the employee for not following policy.

  • Train employees on the policy. If your timekeeping system automatically deducts pre-shift or post-shift time, and/or assumes that employees take their lunch periods, make sure that you can prove that employees understand that they must override these assumptions if they do any work during these periods.

  • Enforce the policy and never allow an exception.

  • Train your managers on the policy, the reasons for the policy and the risks of any exception to the policy. Then hold them strictly accountable for compliance.

Following these rules will help to keep you from spending time and money on lawyers instead of your business goals. If you have any questions about this or any other labor or employment law matter, please feel free to contact any member of our Labor and Employment Law Practice Group.

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