The Third Circuit issued an important precedent-setting decision explaining that under the Fair Labor Standards Act (“FLSA”), employers must compensate employees for all rest breaks up to twenty minutes, ruling against a publishing company. The defendant publishing company did not pay telemarketers who had logged off of their computers for more than a minute and a half.  Sec’y United States Dep’t of Labor v. Am. Future Sys., Inc. d/b/a Progressive Bus. Publ’ns, No.: 16-2685, 2017 U.S. App. LEXIS 19991 (3d Cir. Oct. 13, 2017).  The defendant publishing company, Progressive Business Publications, docked the pay of the telemarketers for almost all time when they were not making sales calls, including time getting water, bathroom breaks, or resting between calls.  For the telemarketers, who were paid minimum wage, this “flex time”—as Progressive called it—sometimes brought their wages below the federal minimum wage, in violation of the FLSA. 

Progressive advanced several arguments to the Third Circuit, but the Court found none persuasive.  Progressive first argued that because employees were free to use the time logged off from their computers however they wished, including leaving the workplace, the logged off time did not constitute work, and therefore the FLSA should not apply.

Writing for a unanimous court, Judge Theodore McKee rejected this argument, reasoning that the FLSA governs “hours worked,” which “is not limited to the time an employee actually performs his or her job duties.”  Id. at 8.  Citing 29 C.F.R. § 785.18, Judge McKee reasoned that even though the FLSA does not require employers to provide employees with breaks, if an employer does provide a break, the employer must compensate the employee for breaks of up to twenty minutes and view the time as hours worked.  Id.

Progressive also argued that because employees could use the time logged off for their own benefit, the “flex time” should be considered off-duty time and not a rest period.  The Court rejected this argument, explaining “that breaks of twenty minutes or less are insufficient to allow for anything other than the kind of activity ... that, by definition, primarily benefits the employer,”  id. at 16, and therefore the “flex time” did not constitute off-duty time.

Even if the “flex time” were considered a rest period, Progressive contended that the “flex time” “should not be enforced [with] a bright-line rule that would require employers to compensate employees for any breaks that are twenty minutes or less.”  Id.  Rather, Progressive contended, courts should analyze breaks on a case-by-case basis to determine whether a break benefits the employer or benefits the employee.

The Third Circuit rejected this argument as well, reasoning that such a scheme would be overly “burdensome and unworkable” to employers as it would require an employer to analyze each and every break an employee took to determine whether the break benefited the employer or benefited the employee.  Id. at 19-20.

Finally, Progressive argued the District Court abused its discretion in awarding liquidated damages based on the Court’s finding that Progressive acted in bad faith.

While the Court noted that Progressive sought the advice of counsel, the Court further noted that Progressive refused to waive its attorney-client privilege and disclose the advice that its attorneys provided regarding the “flex time” break policy.  Id. at 22.  Without knowledge of the advice provided, the Court was placed in the “untenable position of having to assume that counsel’s advice was consistent with the adopted policy” and found the District Court did not abuse its discretion in awarding liquidated damages.  Id. at 25.  Further, the Court explained, regardless of Progressive’s refusal to waive its attorney-client privilege to permit the Court to see whether Progressive’s policy was based on the advice of counsel, Progressive nevertheless acted unreasonably because the case law and the Department of Labor website explicitly and repeatedly establish a “bright line rule” that employees must be paid for breaks of twenty minutes or less.  In light of Progressive’s violation of that clear rule, the Third Circuit would not find that the District Court abused its discretion in awarding liquidated damages.

This case may leave some employers questioning whether they are required to compensate their employees for each and every break throughout their workday, no matter how many breaks they take, as long as the breaks are less than twenty minutes long.  In theory, yes, an employer must compensate employees for those breaks, but—as Judge McKee explained—an employer can adopt policies that place limitations on the length and number of breaks employees may take.  An employer may also discipline or terminate employees who do not conform to these policies. 

The Bottom Line

Progressive underscores just how important compliance with the FLSA is for employers.  Not only are violations extremely costly, but defending employees’ lawsuits for FLSA violations can be very challenging tasks.  With regard to the former, the Department of Labor issued a press release in 2016, prior to the appeal, which estimated that Progressive will have to pay more than $1.75 million in back wages and liquidated damages to more than 6,000 employees.

Recognizing the outsized risk and expense that FLSA violations can pose to employers, we recommend that employers remain vigilant about employees’ timekeeping practices – including, among other things, developing and publishing straightforward, easily understood policies and procedures to ensure accurate timekeeping, with clearly articulated responsibilities for each actor involved – employees, managers, timekeepers, and any others involved in preparing, and keeping timekeeping records – to ensure compliance with the employer’s policies and the law.  An employer may do so by regularly conducting wage and hour audits and otherwise confirming employees are taking breaks in accordance with the employer’s established break policy.

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