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WORKPLACE LAW LOWDOWN | Innovation Does Not Succeed Against 56 Year Old Wage-Hour Regulation

By: Donald H. Scharg

11/03/17

A recent case from the Third Circuit Court of Appeals serves to remind employers that wage-hour innovation must still comply with the Department of Labor (DOL) Wage and Hour interpretations and regulations issued under the Fair Labor Standards Act.

Department of Labor v. American Future Systems, Inc. (3rd Cir. 2017) addressed the issue of paid break time.  DOL regulation 29 CFR 785.18 has been in effect since 1961.  It requires break times of 20 minutes or less be treated as compensable work time.  The regulation provides:

Rest periods of short duration, running from five minutes to about 20 minutes, are common in industry.  They promote the efficiency of the employee and are customarily paid for as working time.  They must be counted as hours worked.  Compensable time of rest periods may not be offset against other working time such as compensable waiting time or on-call time.  (Emphasis added)

At American Future, employees were paid for the time they were logged onto their computers.  Someone at the employer had an idea for a new flex-time policy.  Employees were allowed the flexibility to take break time whenever they wanted, for any reason, for as long as they wanted, as long as they logged off their computer.  Employees were paid for all time they were logged on, plus for breaks of 90 seconds or less.  According to the employer, this flex time policy was a valuable benefit.  Employees, however, were not paid for any breaks over 90 seconds.

In a lawsuit filed by the DOL, the federal district court rejected the employer’s claim that the break time innovation was beneficial for employees.  According to the DOL and the district court, the supposed benefit to the employees was irrelevant because Regulation 785.18 applied and required payment for all breaks of 20 minutes or less. 

The Third Circuit agreed.  It accepted Regulation 785.18’s 20 minute rule as a bright line rule every employer must follow.  Any employee break of 20 minutes or less must be a paid break.  As a result of the violation, the employer in American Future will have to pay employees for the lost break time pay, an equal amount in liquidated damages, and attorneys’ fees.

This employer found out the hard way that the Department of Labor and courts have no patience for employers who disregard longstanding compensable work time rules.  The simple lesson learned from American Future is to be careful with wage and hours issues.  Logic does not always control.  Innovation, when in conflict with rules that are 50-plus years old, will not work.

Ignoring the FLSA regulations can cost the employer plenty.  Contact a member of Bodman’s Workplace Group if you have a wage or hours question.