Wage and Hour Issues Related to Remote and Hybrid Work: A Fertile Delta for Litigation

By: Laurie E. Leader EDITOR-IN-CHIEF, BENDER’S LABOR AND EMPLOYMENT BULLETIN

Everyone agrees that the COVID-19 pandemic has changed the way we work. Even as pandemic numbers wane, employers have continued to allow remote work schedules and hybrid schedules (some combination of remote and in-person work). 

THIS NEW NORMAL HAS PRESENTED A SLEW OF CHALLENGES in terms of digital communication, data security and confidentiality concerns, and how employers manage their workforces, maintain productivity, and control off-the-clock work. On the flip side are issues relating to employee isolation and time management.

From a legal standpoint, many of the challenges to remote work revolve around definitions of compensable work and expense reimbursement and whether work that was once exempt from minimum wages and overtime is transformed to non-exempt work in a remote setting.¹ The exemption issue primarily involves commissioned sales employees. At the heart of these challenges lies the Fair Labor Standards Act (FLSA)² and the Portal-to-Portal Act³ at the federal level, as well as state counterpart wage-hour laws.

The Statutory Framework

The FLSA generally prescribes minimum wage, overtime, and child labor standards for public agencies and for businesses engaged in commerce and in the production of goods for commerce, while the Portal-to-Portal Act defines what work is compensable. An employment relationship is one of the benchmarks for statutory coverage. Because the FLSA’s definitions of employee and employ offer little guidance in their application, courts were charged with the task of interpreting these terms to determine whether or not an employment relationship exists for coverage purposes.⁴ Toward this end, they crafted the economic realities test, a totality-of-the-circumstances test under which courts look to the economic realities of the relationship as a whole.⁵

Most employees are covered by the FLSA. But to determine the wages to which an employee is entitled, the inquiry doesn’t stop with a determination of coverage. Covered employees may be exempt from one or more of the statutory requirements.⁶ There are numerous exemptions under the FLSA that may be linked to a particular industry or job category. Exemptions from overtime may be partial or complete. Of particular significance to the issue of remote work is the exemption for outside sales personnel discussed in greater detail below⁷

Assuming coverage and that an employee is nonexempt from a statutory requirement—such as overtime—there is the issue of whether the hours worked are compensable. If so, a covered employee is entitled to be paid 1.5 times his or her regular rate of pay.⁸ The employee’s regular rate is defined as the employee’s hourly rate.⁹ There are rules as to how to compute the regular rate, but that is not typically an issue for remote workers. Most often the issues that arise are whether the work performed is compensable and whether an employer must pay for unauthorized overtime.¹⁰

Notably, the FLSA is not preemptive of state law. When viewing the FLSA in conjunction with state law, the law that governs is the law most favorable to the employee.¹¹ This means that an employer must determine whether the state law requirements for minimum wages and overtime as well as the state exemptions are more or less favorable to the employee in deciding what wages are owed. Particularly in the minimum wage area, state law requirements are often more favorable than the FLSA—a problem in administration for multi-state employers.¹²

Payment for Unauthorized Remote Work—The Test Is the Employer’s Actual or Constructive Knowledge

As previously noted, the FLSA defines employ as “to suffer or permit to work.”¹³ Department of Labor regulations generally require an employer to pay employees for all hours worked—suffered or permitted—whether or not requested and including work at home.¹⁴ Essentially if the employer knew or should have known of the work being performed, regardless if scheduled, the work is generally compensable. To determine constructive knowledge, courts consider whether the employer should have acquired knowledge of the hours worked through reasonable diligence.15

The FLSA requires an employer to “exercise its control and see that the work is not performed if it does not want it to be performed.”¹⁶ It is the employer’s burden to prevent work when it is not desired and “[t]he mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so.”¹⁷ Accordingly, work that the employer did not request or authorize but suffered or permitted is compensable.¹⁸

As a practical matter, how do employers avoid paying for unauthorized work, given the difficulty of tracking remote work? One means to do so is “by establishing a reasonable process for an employee to report uncompensated work time.”¹⁹ If an employee fails to report hours worked under procedures established for this purpose, the employer is not required to inquire or investigate further to uncover unreported hours.²⁰

There are a few caveats to this rule, however. First and foremost, the employer cannot implicitly or explicitly discourage an employee from reporting hours worked and must compensate employees for all reported hours worked.²¹ Similarly, if an employer is notified that an employee is working or if employees are not properly instructed on how to report hours under the employer’s system, then the employer must pay for the hours worked.²² Notably, where no reporting system is in place, an employee may be compensated for estimated time spent working off-the-clock.²³

The FLSA’s Outside Sales Exemption and Remote Work

The FLSA’s outside sales exemption provides a classic case of how remote work may affect an employee’s entitlement to minimum wages and overtime. Specifically, the outside sales exemption exempts salespersons from FLSA minimum wage and overtime requirements if they satisfy a duties test, which includes a requirement that the exempt salesperson is “customarily and regularly engaged away from the employer’s place or places of business” in “making sales” or in “obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer” as their “primary duty.”²⁴

In the pandemic environment, many salespersons have been precluded from visiting customers on site. If they are working remotely, their home office may be considered the employer’s place of business. Under the circumstances, if they are making sales from their home office, they are engaged in inside sales work rather than in exempt outside sales work. Accordingly, unless they otherwise qualify for an exemption (e.g., as a highly compensated employee), they will need to be paid minimum wages and overtime and will need to be reclassified on a temporary or permanent basis.

Conclusion

Not only has the pandemic impacted how we work, it has presented a host of legal challenges for employers that are still evolving. In the wage-hour area, these challenges are likely to be the subject matter of litigation. To minimize that risk, employers should establish and clearly communicate in writing that off-the-clock work, underreporting of hours, and unauthorized overtime are strictly prohibited. Managers and supervisors should also be trained on the company’s timekeeping and pay policies, so that they can ensure that employees are following them, recording all hours worked, and not seeking to be paid for unnecessary overtime work. 

Laurie E. Leader, formerly a clinical professor at Chicago-Kent College of Law, is a practicing attorney, author, certified mediator, and principal of Effective Employment Mediation, LLC—Chicago, Northfield, & Libertyville Offices. She has authored numerous articles and book chapters and two treatises and is Editor-in-Chief of Bender’s Labor and Employment Bulletin. Laurie earned an A.B. degree from Washington University in St. Louis and her J.D. degree from Cleveland State University.

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1. Certainly, there are other legal issues to remote work beyond the scope of this article including: who should be allowed to work remotely and whether remote work should be a reasonable accommodation under the Americans with Disabilities Act, administering meal and lunch breaks where required, administering leave and paid time-off policies, and coordinating state wage-hour and leave laws with a multi- state remote workforce. 2. 29 U.S.C.S. § 201 et seq. 3. 29 U.S.C.S. § 251 et seq. 4. The FLSA defines employee as “any individual employed by an employer.” 29 U.S.C.S. § 203(e)(1). Equally unhelpful is the statutory definition of employ defined as “to suffer or permit to work.” 29 U.S.C.S. § 203(g). 5. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 730, 67 S. Ct. 1473. 1477, 91 L .Ed. 1772, 1778 (1947). 6. The exemptions are set forth in the statute (see generally 29 U.S.C.S. § 213) but defined in the U.S. Department of Labor’s regulations (see 29 C.F.R. Pt. 541 for the regulations governing the FLSA’s white-collar exemptions). 7. 29 C.F.R. § 541.500. 8. 29 U.S.C.S. § 207(a)(1). 9. 29 C.F.R. § 778.108. 10. Unauthorized overtime generally refers to overtime which the employer challenges as never authorized or of which it was unaware. As discussed herein, if the employer reaped the benefit of the work, it will usually be deemed to be compensable. 11. See generally 29 U.S.C.S. § 218(a) (allowing states to set greater minimum wage, maximum hour, and child labor standards than the FLSA provides). 12. For a state-by-state analysis of wage-hour laws, see 1 Wages & Hours: Law and Practice CHAPTER 13.syn. 13. 29 U.S.C.S. § 203(g). 14. 29 C.F.R. § 785.11-12. 15. See Allen v. City of Chi., 865 F.3d 936, 945 (7th Cir. 2017), cert. denied, 138 S. Ct. 1302 (2018). 16. 29 C.F.R. § 785.13. 17. Id. See also Chao v. Gotham Registry, Inc., 514 F..3d 280, 291 (2d Cir. 2008). 18. 29 C.F.R. § 785.11. 19. Allen, 865 F.3d at 938. 20. Id. See also White v. Baptist Mem’l Health Care Corp., 699 F.3d 869, 876 (6th Cir. 2012) (“When the employee fails to follow reasonable time reporting procedures she prevents the employer from knowing its obligation to compensate the employee”); Kellar v. Summit Seating Inc., 664 F.3d 169, 177 (7th Cir. 2011) (“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.”). 21. Allen, 865 F.3d at 939. 22. Allen, 865 F.3d at 946 n.5. 23. See McDaniel v. Apex Sys., 2021 U.S. Dist. LEXIS 250967, at **3-4 (N.D. Cal. May 4, 2021) (plaintiffs stated a claim on behalf of themselves and others similarly situated for alleged failure to be compensated “for all hours worked and off-the-clock work including (a) time spent onboarding before each employee’s first shift, (b) during purported ‘meal [and rest] breaks’; (c) travelling to mandatory trainings or work-related functions, and (d) remotely logging and reporting hours of work or other administrative tasks”). McDaniel also highlights some of the issues related to remote work and expense reimbursement, in this case, for the employer’s failure to reimburse employees for business-related costs including the use of personal cell phones to “field work-related calls and texts from Apex representatives” and to receive automated text message reminders to submit time entries. 2021 U.S. Dist. LEXIS 250967, at **9-10. 24. 29 U.S.C.S. § 213(a)(1); 29 C.F.R. § 541.500. The term “making sales” is statutorily defined (29 U.S.C.S. § 203(k)), whereas “primary duty” is defined in the regulations (29 C.F.R. § 541.700).