When Your Employee Works OT on the QT, Must You Pay It?

That was the question that the Seventh Circuit Court of Appeals faced in an opinion released yesterday.

If you don't know, then you don't pay.

The Fair Labor Standards Act (FLSA), among other things, establishes minimum wage and overtime pay standards affecting employees in the private sector and in Federal, State, and local governments. With respect to overtime pay, employer must pay time-and-a-half to covered non-exempt employees who work more than 40 hours in a given week.

But what happens if an employee works OT and you don't know about it?

In Kellar v. Summit Seating, Inc. [an enhanced version of this opinion is available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], a copy of which you can find here, the court recognized that to state a claim under the FLSA, an employee must show that her employer knew about the OT:

The FLSA imposes an obligation on the employer to exercise its control and see that work is not performed if it does not want it to be performed. The employer cannot sit back and accept the benefits without compensating for them. The employer's duty arises even where the employer has not requested the overtime be performed or does not desire the employee to work, or where the employee fails to report his overtime hours. The mere promulgation of a rule against overtime work is not enough. Nor does the fact that the employee performed the work voluntarily necessarily take her claim outside of the FLSA. However, the FLSA stops short of requiring the employer to pay for work it did not know about, and had no reason to know about. (internal citations and quotations omitted).

In Kellar, the plaintiff went so far as to clock into work early. However, the court held that punching in before a scheduled shift is not enough, by itself, to put an employer on notice that the employee is working OT. That is, employees who clock in early may not be performing work. And employees don't get paid for standing around and doing nothing. (Although, waiting time may be compensable).

Here's a tip to guard against overtime abuse.

Have a written policy mandating that non-exempt employees must first obtain supervisor approval to work OT. If employees violate that policy, you still may have to pay that OT. However, you can also counsel and, as necessary, discipline those who violate the policy. And by no means should employers modify time records. Unless, of course, you like lawsuits.

This article was originally published on Eric B. Meyer's blog, The Employer Handbook

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