Common Violations

One of the most common violations of federal and state wage laws occurs when employees perform work that is unpaid or which isn’t counted toward overtime because it is not captured in the company’s time keeping system. If the “off-the-clock” work results in paying less than the minimum wage or reduces overtime hours worked in a given workweek, this is a violation of the Fair Labor Standards Act’s minimum and/or overtime pay provisions, as well as may state’s wage laws.

There are a number of reasons why off-the-clock work is so prevalent in the general workforce. Oftentimes managers and supervisors are under pressure to meet department goals or reduce labor costs in order to avoid discipline or make bonuses, so they coerce employees to start working before they clock in, or clock out and keep working. Although this occurs in many industries, it is particularly pervasive in the restaurant industry because restaurant managers are often incentivized by their company’s bonus structure, and penalized for failing to “run costs,” including labor costs. This was a factor in cases brought against the Krystal Company which resulted in a $13.84 million dollar recovery for hourly restaurant workers, and against Ryan’s Family Steak Houses, Inc. which resulted in a $13.5 million dollar recovery for hourly servers, cooks, and other restaurant workers.

Another typical cause of off-the-clock work is when employees are forced to finish a project by a specific deadline, but are prohibited from working overtime – in that situation, the employees are forced to choose between working unauthorized overtime “off-the-clock,” or not completing the project on time. Another common cause of off-the-clock work occurs when employers impose unrealistic production goals on employees, such as, for example, when a company requires its therapists to spend 85% or more of their on-the-clock time performing actual therapy work which can be billed through to Medicare or a private insurance company, forcing the therapists to perform charting and other clerical work off-the-clock. This was the allegation in cases brought against Rehab America which resulted in recoveries totaling $735,000 on behalf of 18 therapists and therapy assistants.

Other common examples of off-the-clock work include allowing or requiring employees to engage in:

• Pre-shift work, such as loading tools on trucks, cleaning the restaurant or worksite, performing pre-sales research, booting up computers and loading software systems;
• Post-shift work, including cleaning up work stations, completing tasks which were not completed during the regular shift, rolling silverware in a restaurant;
• Completing clerical or administrative work, such as charts or other paperwork;
• Pre-shift or post-shift meetings with management;
• Participating in work-related training;
• Unpaid call-backs or repair work;
• Working from home after hours; and
• Donning or doffing uniforms or PPE pre-shift or post-shift.

Another common violation occurs when employers intentionally underreport work time, such as when a supervisor “shaves” employee work hours from the computer system, or falsifies employee time entries to limit the overtime hours incurred by the supervisor’s department or in the work unit.

One of the basic requirement of the Fair Labor Standards Act is that employers pay nonexempt (overtime eligible) employees overtime pay for all hours worked over 40 in a workweek at a rate of pay of at least 1.5 times its employees’ regular rate of pay. 29 U.S.C. §207(a). For nonexempt employees and employees exempt only from the FLSA’s overtime pay requirements (but not minimum wage requirements), employers must keep records which include the total hours the employee worked each workday and workweek; the employee’s total daily or weekly straight-time wages; and the employee’s total premium pay for overtime hours. 29 C.F.R. §516.2(a). An employer that “shaves” hours from its computer system or falsifies employee time entries to reduce labor costs and avoid overtime hours violates these provisions and regulations.

In the Pierce v. Wyndham Vacation Resorts, Inc. lawsuit brought by Stop Wage Theft Lawyers, one of the primary allegations was that Wyndham implemented a policy and practice which required its managerial and supervisory employees to “edit” or “shave” Sales Representatives’ time entries, in order to improperly reduce the number of hours they actually worked per week in order to avoid paying them overtime. This illegal practice resulting in a favorable trial verdict and subsequent settlement of nearly $12 million dollars in back overtime pay for approximately 158 timeshare sales representatives.

Federal law does not require that employers provide their employees meal or rest breaks, though many state and local laws do. However, employers which do provide lunch and rest breaks must comply with certain federal regulations governing the compensability of those breaks. For instance, short rest breaks of 20 minutes or less are counted as working time, and employers must pay employees for those short breaks. 29 C.F.R. §785.18. On the other hand, meal breaks of 30 minutes or more are not considered as working time, and as long as the employee is completely relieved from working during that meal period, employers do not need to pay its employees for those meal breaks. 29 C.F.R. §785.19. Employers must comply with the applicable federal, state, or local law providing employees with the greatest rights and protections.

By far the most frequent break time violation occurs when employees perform work during their meal break, but the employer still deducts the full meal break period from the employees’ pay. According to the regulation, “the employee must be completely relieved from duty for the purposes of eating regular meals,” and “[t]he employee is not relieved if he is required to perform any duties, whether active or inactive, while eating.” 29 C.F.R. §785.19(a). Therefore, if an employee performs any work during his or her lunch break, the employer must include the employee’s lunch break as hours worked and pay the employee for that break time. The examples in the regulation are “an office employee who is required to eat at his desk or a factory worker who is required to be at his machine is working while eating.” Under federal law it is not necessary that an employee be permitted to leave the premises if he is otherwise completely freed from duties during the meal period. 29 C.F.R. §785.19(b).

Claims of break time violations under the Fair Labor Standards Act and state wage laws are often combined with failure to pay overtime claims to increase the total amount of overtime wages due. For instance, if an employee works 2 ½ hours of unpaid overtime in a particular 5 day work week, but works through each of his or her 30 minute lunch breaks during that week, the employee is owed 5 hours of overtime pay, not 2 ½. A frequent cause of break time violations is because employers have an automatic break time policy where employee lunch time – whether 30 minutes or an hour – is automatically deducted from employees’ pay regardless of whether the employees performed work during their lunch break. One of the allegations against Ryan’s Family Steak Houses, Inc. which resulted in a $13.5 million dollar recovery for hourly servers, cooks, and other restaurant workers was that Ryan’s managers routinely deducted thirty (30) minute break periods from employees’ hours of work which they either did not take or which was interrupted by work.

The overtime pay standard in §7(a) of the Fair Labor Standards Act requires that overtime must be compensated at a rate not less than one and one-half times the regular rate at which the employee is actually employed. The regular rate of pay cannot be be less than the federal statutory minimum of $7.25 an hour, although many states and local governments have much higher minimum wage rates. 29 C.F.R. §778.107.

Section 7(e) of the Fair Labor Standards Act requires inclusion of “all remuneration for employment paid to, or on behalf of, the employee” in the “regular rate” except payments that are specifically excluded as “statutory exclusions” such as expense reimbursements, payments for vacation, holiday, and sick leave, and Christmas cash gifts. The Supreme Court has described it as the hourly rate actually paid the employee for the normal, non-overtime workweek for which he or she is employed – an “actual fact” (Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419). 29 C.F.R. §778.108.

The “regular rate” under the Fair Labor Standards Act is an hourly rate. The Act does not require that employers pay their employees on an hourly rate basis as opposed to a piece-rate, salary, commission, or other basis, but in such case the overtime compensation due to employees must be computed on the basis of the hourly rate derived from those alternative payment methods. The regular hourly rate of pay of an employee is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid. 29 C.F.R. §778.109. If, for example, an employee was paid $12 an hour but also receives a bonus of $46 for the week, and works 46 hours that week, his regular rate would be $13. This $13 regular rate is calculated by multiplying the employee’s $12 hourly rate x 46 hours of work in the week, which totals $552. The addition of the $46 bonus makes a total of $598; this total is then divided by 46 hours, yielding a regular rate of $13. 29 C.F.R. §778.110(b).

Employers often reduce their employees’ overtime pay by excluding “all compensation” earned by their employees – such as bonuses and commissions – which artificially lowers the regular rate amount which is used to calculate overtime pay. This was the allegation in the Hughes v. Diamond Resorts International Marketing, Inc., and West Maui Resorts Partners, L.P. and Delara v. Diamond Resorts International Marketing, Inc. cases. In these cases against Diamond, the plaintiffs’ alleged that they frequently worked more than forty (40) hours in a workweek, but were not properly paid overtime because their regular rate of pay was not computed based on their entire compensation for a given workweek, but instead excluded their commission and/or bonus earnings. This practice resulted in a nearly $8 million dollar recovery on behalf of Diamond sales representatives, concierges and marketing supervisors.

Certain categories of employees are “exempt” from overtime pay under the Fair Labor Standards Act, as well as under most state laws. If an employee is properly classified as “exempt,” this means his or her employer does not have to pay an overtime premium for working more than 40 hours in a workweek (or daily overtime under some state laws). Employees who are “non-exempt” must be paid overtime compensation at the rate of 1.5 times their regular rate of pay for each hour they work in excess of 40 in a workweek. Generally, these “exempt” categories include the executive or “managerial” exemption; the administrative exemption; the professional exemption; and the outside salesperson exemption. By contrast, persons who perform work for a company as true “independent contractors” are not employees, and are therefore not covered by or entitled to the protections of the Fair Labor Standards Act, including minimum wage or overtime pay.

The Department of Labor’s regulations related to “white collar” exemptions state that an employee is paid on a “salary basis” if the employee regularly receives each pay period, on a weekly or less frequent basis, a pre-determined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. 29 C.F.R. §541.602(a). With limited exceptions, the exempt employee must receive his or her full salary for any week in which he or she performs work, without regard to the number of days or hours worked. Permitted deductions from an employee’s salary may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability; or for sickness or disability for one or more full days if done in accordance with a bona fide sick leave or disability policy or practice; as penalties for infractions of safety rules of major significance; for unpaid disciplinary suspensions of one or more full days imposed for infractions of workplace conduct rules; and employers may pay a proportionate part of an employee’s salary in the initial and terminal week of employment. 29 C.F.R. §541.602(b). An employee is not paid on a “salary basis” if deductions from the employee’s salary are made for absences occasioned by the employer or by the operating requirements of the business. Deductions also are not permitted from an exempt manager’s salary for damage to equipment used in their jobs, or for cash shortages or “drive offs.”

One of the most common reasons companies misclassify their managerial employees is because they make improper deductions from the pay of their supervisors or managers, and therefore do not pay on a “salary basis.”

For instance, in the Cole v. Long John Silver’s, Inc. case, (then owned by YUM! Brands, Inc.) Plaintiffs alleged that Long John Silver’s Restaurant General Managers, Assistant Restaurant General Managers and Training Managers were subject to having their salaries reduced pursuant to Long John Silver’s “Security (Restitution for Losses)” policy which imposed disciplinary deductions for monetary, inventory, and property losses which occurred in the restaurants. The Long John Silver’s case was tried in San Francisco California, resulting in a $43 million dollar award for managers across the country.

Similar allegations in the case of Belcher v. Shoney’s, Inc. resulted in an $18 million dollar recovery for a nationwide class of restaurant managers, and $3 million dollars in the Hoffman v. Sbarro case filed in New York.

While there is a “safe harbor” provision for employers who make isolated or inadvertent improper deductions provided they have a clearly communicated policy prohibiting improper salary deductions, provide a complaint mechanism in the policy, and reimburse employees for improper deductions (29 C.F.R. §541.603(d)), it is very difficult for an employer to satisfy this safe harbor provision if it has an “actual practice” of making such deductions.

Section 3(m) of the Fair Labor Standards Act allows employers to take a tip credit toward their minimum wage obligations for “tipped employees” equal to the difference between the “direct” wage of at least $2.13 an hour, and the federal minimum wage of $7.25 an hour, but only so long as the employee’s tips plus the “direct” wage add up to at least $7.25 an hour. If they don’t, the employer must make up the difference.

Whether or not an employer takes a tip credit, tips are the property of the employee, and an employer may not require the employee to turn over his or her tips, or otherwise use the employee’s tips unless it is as a partial credit against its minimum wage obligation to the tipped employee, or as part of a valid tip pool. 29 C.F.R. § 531.52. Except for these two reasons, employers violate the Fair Labor Standards Act if they take deductions from the employee’s tips. For example, an employer cannot pay its tipped employees the full minimum wage and then require the employee to turn over all his or her tips to the employer.

An employer may not take advantage of the tip credit unless its employees have been notified of: 1) the cash wage it is paying tipped employees (at least $2.13); 2) the amount it is claiming as a tip credit (presently $5.12); 3) that tips are the property of the tipped employees (unless a valid tip pool exists); and 4) the tip credit does not apply unless the employee has been informed of the Fair Labor Standards Act’s tip credit provisions. 29 C.F.R. § 531.59(b). An employer’s failure to provide this notice to employees about tip credit rules makes it liable for the difference between the minimum wage and the direct wage it paid the employee (usually $5.12 an hour), plus liquidated, also known as double, damages.

Under the Fair Labor Standards Act, employees must be allowed to keep all tips earned unless they participate in a valid tip-pooling arrangement. Subject to the exception below, only employees who regularly receive tips, such as waiters, bellhops, busboys, bartenders and waitresses, may participate in a tip pool arrangement. Under a new DOL rule, an employer that pays the full minimum wage and takes no tip credit may allow non-tipped employees, such as cooks and dishwashers, to participate in the tip pool. 29 C.F.R. § 531.54(d). An employer that collects tips for a mandatory tip pool must redistribute the tips within the pay period. Employers, including managers and supervisors, are prohibited from participating in a tip pool or otherwise keeping employees’ tips, regardless of whether the employer takes a tip credit. But under the new DOL rule, a manager or supervisor may keep tips that he or she received directly from customers based on the service that he or she directly and solely provides. 29 C.F.R. § 531.52(b)(2).

Under the DOL rules, an employer may take a tip credit only when an employee is performing “tipped” work, and may not take a credit for time spent on non-tipped work. However, an employee remains a tipped employee even when performing side work that is related to the tip-producing work, such as bussing tables, rolling silverware, cleaning coffee urns. Under the “80/20 rule,” an employer loses the tip credit if an employee spends more than 20% of their time in a workweek performing this side work, and the employer is then liable for the full minimum wage for the week. An employer also loses the tip credit for any portion of a continuous period exceeding 30 minutes that a tipped employee performs side work, and must pay minimum wage for any time spent on side work which exceeds 30 minutes.

One of the most common violations regarding tipped employees occurs because non-tipped employees – such as cooks, janitors, or dishwashers – participate in tip pools. Another common violation, particularly in restaurants, is because employers violate the “80/20%” rule and require tipped employees to spend more than 20% of their time working in a non-tipped capacity while still taking the tip credit for that non-tipped work. This was one of the allegations in the Walker v. Ryan’s Family Steak Houses, Inc. lawsuit which alleged that Ryan’s classified large numbers of its employees as “servers” and payed them $2.13 an hour despite their regular performance of a large volume of non-server duties such as cooking and cleaning, resulting in a $13.5 million dollar verdict for a class of hourly employees. Meadows v. Krystal Company and Brinkley v. Krystal Company is another case brought on behalf of a multi-state class of hourly-paid employees which resulted in a $13.84 million dollar recovery.

An employer’s overtime obligations are determined and fixed at the conclusion of each workweek – the so-called “workweek standard” – and employers cannot average hours worked over two or more workweeks or time periods to reduce, or eliminate entirely, their obligations to pay overtime under the Fair Labor Standards Act. The DOL’s regulation at 29 C.F.R. §778.103 makes clear that the standard for determining an employer’s overtime obligations is whether an employee works more than 40 hours in a given workweek: “If in any workweek an employee is covered by the Act…the employer must total all the hours worked by the employee…in that workweek…and pay overtime compensation for each hour worked in excess of [40] hours.” Another DOL regulation specifically precludes “averaging” hours over two or more weeks: “The Act takes a single workweek as its standard and does not permit averaging of hours over two or more weeks. Thus, if an employee works 30 hours one week and 50 hours the next, he must receive overtime compensation for the overtime hours worked beyond the applicable maximum in the second week, even though the average number of hours worked in the 2 weeks is 40.” 29 C.F.R. §778.104.

In the Pierce v. Wyndham Vacation Resorts, Inc. case, Wyndham’s attempt to average non-overtime workweeks with overtime workweeks in order to reduce its damages was rejected by the court because it violated the workweek standard, resulting in a recovery of nearly $12 million dollars in back overtime pay for approximately 158 timeshare sales representatives.

Employers also sometimes try to avoid overtime pay by providing “comp time” to their employees. For example, if an employee works 42 hours in a week, rather than paying 2 hours of overtime, the employer requires the employee to take off 2 hours in the next workweek. This practice also violates the “workweek standard.” While public employers are permitted to pay “comp time” in lieu of overtime compensation, they must provide no less than one and one-half hours of comp time for each hour of overtime worked.

The Fair Labor Standards Act requires employers to pay nonexempt employees overtime compensation of at least 1.5 times their regular rate of pay for all hours worked in excess of 40 in a workweek. Overtime pay is determined on a workweek basis, and employers cannot average hours over two weeks or more. 29 U.S.C. § 207(a)(1). The regular rate must include all compensation for employment, except for certain exemptions expressly permitted by the FLSA. Overtime pay must be calculated using the average hourly rate derived from all compensation, be it piece-rate, salary, commission, or some other basis. 29 U.S.C. § 207(e).

A common violation committed by some employers is to only pay the regular hourly rate for overtime hours worked by employees instead of 1.5 times that regular rate. Employers who do this can be liable for the half-time pay they failed to pay, as well as liquidated (also known as double damages) damages, costs and attorneys’ fees.

Employers are permitted to “round” an employee’s start and stop times so long as the rounding is done fairly, both up and down. 29 C.F.R. §785.48(b). The DOL provides an illustration of an employer that rounds employee working time to 15 minute intervals: “If under such a policy an employee reports to work at 9:08 a.m. rather than at the expected 9:00 a.m. stating time, the employee need only be compensated for work commencing at 9:15 a.m. However, if the same employee clocked in at 9:07 a.m., the worker would have to be paid as if he or she had commenced work at 9:00 a.m. Over time, the hours worked under this arrangement would presumably even out in a manner fair to both the employer and the employee.”

Time clock rounding should be performed in a way that doesn’t always favor the employer but instead “averages out so that the employees are fully compensated for all the time they actually work.” If it’s impossible to ensure a balanced outcome, rounding should favor the employee.

The DOL regulations provide that “work not requested but suffered or permitted is work time. For example, an employee may voluntarily continue to work at the end of the shift. He may be a pieceworker, he may desire to finish an assigned task or he may wish to correct errors, paste work tickets, prepare time reports or other records. The reason is immaterial. The employer knows or has reason to believe that he is continuing to work and the time is working time.” 29 C.F.R. §785.11.

This rule is applicable to work performed away from the job site, and even at home. “If the employer knows or has reason to believe that the work is being performed, he must count the time as hours worked.” 29 C.F.R. §785.12.

The DOL says that it is the duty of management to exercise its control and see that the work is not performed if it does not want it to be performed, and cannot sit back and accept the benefits without compensating for them. The 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. 29 C.F.R. §785.13.

A common minimum wage and overtime violation that occurs is when non-exempt employees work from home making and taking phone calls, working on their computers, and performing other work with the knowledge of their employer.

Under the Fair Labor Standards Act, the time employees spend commuting from home to work, or work to home, is not considered worktime. 29 C.F.R. § 785.35. It doesn’t matter if the employee reports to a different worksite each morning, that travel time is non-compensable commute time under the regulations. Generally, an employee is not at work until he or she arrives at the work site. Travel in the middle of the workday after reaching the worksite is compensable. For example, “time spent by an employee in travel as part of his principal activity, such as travel from job site to job site during the workday, must be counted as hours worked.” 29 C.F.R. § 785.38. If an employee is required to travel for a one-day assignment in another city, all travel time to and from the destination – minus the time the employee would normally have spent commuting to their regular work site – is worktime and must be paid under the “special one-day assignment” rule. 29 C.F.R. § 785.37. Time spent travelling overnight on a plane, train, boat, bus or car that occurs outside normal working hours is not considered worktime. 29 C.F.R. § 785.41. However, any work which an employee is required to perform while travelling must be counted as hours worked. 29 C.F.R. § 785.41. Travel time for overnight trips which occurs within the employee’s regular work hours is compensable. 29 C.F.R. § 785.39.

One of the most common “travel time” violations occurs when employees are not paid for travel from the office or shop where they load equipment, attend meetings, or engage in other work, to a customer’s location or other job site. Another is when an employee is working while travelling even if the work occurs while commuting from his or her home to the job site. In Martin v. Olin Mills, Plaintiffs alleged that they were performing compensable work while travelling from their homes to schools and other venues because they loaded and transported camera equipment in their vans while travelling, resulting in a recovery of $4.1 million dollars on behalf of 451 photographers.