Affirming summary judgment to the Secretary of Labor, the Third Circuit held that an employer’s flexible time policy, which allowed employees to log off their computers during their 8:30 to 5:00 workday at any time, for any reason, for any length of time—but would only pay them for their logged-off time if it did not exceed 90 seconds—violated FLSA regulations that require employers to compensate employees for breaks of 20 minutes of less. The appeals court did not agree that because the FLSA does not require employers to provide breaks, time logged off for less than 20 minutes under the employer’s flex-time policy could not be “hours worked,” making the FLSA inapplicable. Instead, the court afforded the DOL’s regulation at 29 C.F.R. §785.18 Skidmore deference and applied the regulation’s bright-line rule that break periods of 20 minutes or less are compensable (Secretary U.S. Department of Labor v. American Future Systems, Inc. dba Progressive Business Publications, October 13, 2017, McKee, T.).
New break policy. The business information publisher and distributor employs sales representatives working in several call centers and pays them an hourly wage plus bonuses. Prior to 2009, the employer paid employees for two 15-minute breaks daily, but it then implemented a written compensation policy that stated that sales reps could take personal breaks at any time, for any reason, and for any duration, but that the time logged-off would not be paid unless they were logged off for less than 90 seconds. This applied to restroom breaks, coffee breaks, or to get ready for the next call. Sales reps were expected to log off at any time they were not working on an active call or engaged in other activities the employer deemed work-related; on average, sales reps are each paid for just over five hours per day at the federal minimum wage of $7.25 per hour.
At the district court, the employer moved for summary judgment, and the Secretary moved for summary judgment in part on its minimum wage claim and for entitlement to liquidated damages, which the district court granted in part. On appeal, the employer argued that time spent logged off under its flexible break policy categorically does not constitute work; that the trial court erred in finding the regulation on breaks less than 20 minutes long (Sec. 785.18) was entitled to substantial deference; and that it was error to adopt the bright-line rule embodied in that regulation rather than using a fact-specific analysis. None of these arguments was persuasive to the Third Circuit.
It’s not a “break”? Under its policy, the company argued, because employees are basically free to do anything they choose and can even leave the jobsite when logged off of their computers, this logged-off time is not hours “worked,” and the FLSA does not apply. It claimed it did not have a break policy at all, which is not required under the FLSA. But the court found that this argument “cannot withstand scrutiny,” pointing out that FLSA protections can’t be negated by an employer simply characterizing its policy as flex-time when the “log off” times are clearly “breaks” to which the FLSA applies. In reality, suggested the appeals court, what was happening is employees were not going to get paid for bathroom breaks unless they could sprint from computer to bathroom and back in less than 90 seconds, a result it characterized as “absolutely contrary to the FLSA.” Refusing to allow an employer to circumvent the FLSA’s “remedial mandates by disguising a break policy as ‘flexible time,’” the court found the employer did have a break policy and the FLSA did apply.
Skidmore deference. The parties agreed at the district court level that Skidmore would determine the level of deference owed to WHD’s interpretation in Sec. 785.18, but the employer argued on appeal that the district court actually had overstated the level of deference. However, the appeals court concluded that the agency’s interpretation, as set forth in section 785.18, should be afforded the highest level of deference under Skidmore. Congress ratified WHD’s interpretation, which had been in place since 1940, by enacting former FLSA Sec. 16(c) in 1949; WHD’s interpretation has been consistent throughout its various opinion letters on this matter; WHD’s interpretation is reasonable given the language and purpose of the FLSA (the regulation undoubtedly protects employee health and general well-being); and it was well within WHD’s expertise.
Bright-line rule. The company further argued that Sec. 785.16, as opposed to Sec. 785.18, applied to its policy because the “breaks” are unrestricted periods for employees to use whenever they want and however they want, solely for their own benefit. But Sec. 785.18 is a separate, more specific regulation carving out the compensability of breaks that are 20 minutes or less, explained the appeals court, and as a matter of labor policy and practical consideration, breaks of 20 minutes or less are insufficient to allow for anything other than the kind of activity (or inactivity) that, by definition, primarily benefits the employer.
No fact-intensive inquiry. Continuing that argument, the employer contended that courts should analyze whether a given break is intended to benefit the employer or the employee and, if the break benefits the employee, she need not be compensated, suggesting a fact-intensive inquiry to determine when idle time is compensable. But the precedent cited by the employer did not actually support its contention, said the Third Circuit, reminding that compensability of breaks longer than 20 minutes was not before it. Thus, the employer’s argument as to breaks of less than 20 minutes was “not only contrary to the regulatory scheme and case law, it would also establish an administrative regimen that would be burdensome and unworkable. Employers would have to analyze each break every employee takes to determine whether it primarily benefitted the employee or employer,” which would be difficult, if not impossible, to implement, as many courts have suggested.
Liquidated damages. Although the district court had refused to grant the Secretary summary judgment on willfulness, it did so on liquidated damages. To avoid mandatory liability for liquidated damages, an employer must show that it acted in good faith and that it had reasonable grounds for believing that it was not violating the Act. In assessing liquidated damages, the lower court noted that the CEO sought advice of counsel before implementing the new flexible time policy, but he refused to waive the attorney-client privilege and disclose the advice to the court. Given the unwillingness to share what it was told by counsel, the lower court found it “an absurd result to classify such conduct as ‘good faith’.”
And, while agreeing with the employer here that employers are not required to seek legal advice to demonstrate good faith, the Third Circuit also agreed with the trial judge, who was “incredulous that an employer in this situation would decline to share the legal advice it received when the issue of good faith is raised, and we will not preclude a court from considering this in its thought process.” Even ignoring the refusal to disclose the substance of the legal advice received, the appeals court found the employer lacked reasonable grounds overall for believing its flexible time policy comported with the FLSA.
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