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Leadership, Overtime, and Willful Violations of the Fair Labor Standards Act
July 24, 2009
Frank R. Laws i and Donna M. Glover ii
Is there a connection between payment of overtime and leadership within a company? A recent decision in a Colorado federal district court that held that a company willfully violated overtime laws exposes an important lesson for those who lead organizations. McGrath v. Central Masonry Corp., No. 06-CV-00224-CMA-CBS, 2009 WL 1992942, *1 (D. Colo. July 08, 2009).
What Happened in McGrath?
To be sure, nothing good happened for the employer. Employee James McGrath (“McGrath”) sued Central Masonry Corp. (“Central Masonry”) because he did not get paid overtime for attending mandatory foremen meetings, mandatory Spanish classes, and picking up employee paychecks. Under the Fair Labor Standards Act (“FLSA”) such activities are compensable.
The company's defense was that McGrath did not indicate any overtime on his time sheet, so payroll could not pay him for the overtime. Initially, in 2007, a Colorado federal district court ruled in favor of Central Masonry, being persuaded that McGrath's time-keeping failure was a legitimate defense. McGrath appealed, however, and the Court of Appeals for the Tenth Circuit reversed. The Tenth Circuit decided that genuine issues of material fact existed as to whether the employer had knowledge of McGrath's unpaid overtime. And, as it turns out, the Tenth Circuit was quite right. The case was sent back to the Colorado federal district court for further proceedings.
At a jury trial, the company again posited that it could not pay any overtime because McGrath, who was responsible for reporting the overtime on his time sheet, failed to do so. Therefore, the company argued that it had no knowledge of McGrath's overtime. But wait . . . here is what the jury learned at trial: - It was widely believed throughout the company that the Chief Executive Officer (“CEO”) adamantly opposed paying overtime.
- McGrath did not include the overtime hours on his time sheets because he believed the CEO would be angry if he did.
- McGrath testified that the CEO berated him for reporting overtime, and accused McGrath of giving himself a pay raise by reporting more than 40 hours per week.
- The Vice President (“VP”) who supervised the company's foremen received numerous complaints from foremen about unpaid overtime.
- The VP never reported these complaints to the CEO because he knew the CEO's position on overtime, and arguing with him would be futile. In his deposition the VP said, " . . . when the CEO pretty much says, 'This is the way it is,' that's the way it is, and he doesn't bend very much at all."
Giving the CEO the benefit of the doubt, perhaps he said, "I don't want to pay overtime," meaning he did not want people working more than 40 hours, what the jury believed he meant however, was that he truly meant, "I don't want people charging for their overtime.” The jury ultimately found in McGrath's favor and awarded him $10,753.13 in unpaid overtime wages. McGrath's success did not end there, however.
Failure to Consult Counsel Evidenced Willful Violations of the FLSA
The jury also found that McGrath's employer willfully violated the FLSA. An employer that violates the overtime provisions is liable for liquidated damages in an amount equal to the unpaid overtime compensation unless the employer can demonstrate that (1) it acted in good faith, and (2) it had reasonable grounds for believing that its actions were not a violation of the FLSA. It is an easy guess as to what happened next – the employer could not objectively show that it had an honest intention to comply with the FLSA or that it had reasonable grounds to believe its actions did not violate the FLSA. The employer unsuccessfully argued that it did not have “actual knowledge” of the overtime hours McGrath worked, and that the jury's determination of “willfulness” was only based on “constructive knowledge.” The court disagreed and supported the jury's findings, which caused the employer to pay McGrath another $10,753.13 in liquidated damages.
The court observed that the employer's “flex time policy,” under which employees were supposed to “flex” their work hours to ensure that work hours and hours spent in meetings did not exceed forty hours per week was evidence that the employer knew it was violating the FLSA, and the policy was generally known among employees as a way to reduce expenses. The court noted that the policy was a “homegrown concoction” created to control costs without regard to the law. Specifically, the court denounced the flex time policy as “fly-by-night” because the employer had not consulted with a lawyer or other expert regarding whether the flex time policy complied with the FLSA. The fact that the employer had not sought legal guidance for its flex time policy lead the court and the jury to find that the employer knew it failed to comply with the law.
Lessons for Employers
Leadership has a pivotal place in complying with the law. Most employers make good faith efforts to comply with the complicated provisions of the FLSA. Yet the McGrath decision demonstrates that employers must carefully review their overtime and flex time policies, engaging counsel to assess their legality, and make sure that managers and supervisors understand and follow the FLSA's overtime provisions.
i Francis R. Laws is a shareholder at the firm of Thomas & Libowitz, P.A. and chairs the firm's Labor and Employment practice. He can be reached at (443) 927-2119 or flaws@tandllaw.com.
ii Donna M. Glover is an associate in the firm's Labor and Employment practice. She can be reached at (443) 927-2149 or dglover@tandllaw.com.
This article is provided for informational purposes only and should not be construed as a legal opinion or legal advice. The reader should not rely on this article in making business, legal, or other decisions on any matter without first consulting an attorney regarding any such decision or undertaking.
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