Can an Employer Be Liable For Overtime When an Employee Knowingly Under-reports Hours?

According to the Eleventh Circuit...Yes!

In a recent decision by the Eleventh Circuit, the Court held that employers cannot successfully assert equitable defenses and avoid liability – even when the employee knowingly violated company policies by working “off the court” and submitted inaccurate time records – where there is evidence that the employee’s supervisor both knew that the employee was working “off the clock” and edited down the employee’s timecards.

In Bailey v. TitleMax, 2015 WL 178346 (11th Cir. 2015), the Eleventh Circuit rejected the employer’s argument that it should not be liable for unpaid overtime based on an employee’s wrongdoing. In Bailey, the plaintiff filed suit seeking unpaid overtime under the FLSA even though his timecards did not reflect that he worked overtime. The plaintiff explained that his hours were underreported because his supervisor told him that TitleMax did not pay overtime and demanded that he work “off the clock” and edited Bailey’s timecards to reduce the number of reported hours.

In order to recover for unpaid overtime, an employee must show that (1) he worked overtime without pay and (2) that his employer knew or should have known he worked overtime. In this case, there was no dispute that Bailey worked unpaid overtime hours and that his supervisor demanded he work “off the clock” and doctored Bailey’s time cards. Normally, this is the end of the inquiry. However, TitleMax asserted that, even if this was true, Bailey could not recover based on the equitable defenses of unclean hands and in paro delicto. (At the most basic level, both defenses bar a plaintiff’s claim in appropriate circumstances if the defendant proves the plaintiff bore responsibility for his own injury.)

Although the Northern District of Georgia agreed with TitleMax, the Eleventh Circuit did not. In reversing the grant of summary judgment to TitleMax, the Eleventh Circuit explained that, Circuit precedent held that knowledge by supervisors that employees are underreporting hours can be imputed to employers and can support a claim for unpaid overtime under the FLSA. The Court held that TitleMax’s attempt to distinguish Circuit precedent was a distinction without a difference and explained that it does not matter whether the court looks at the employee’s actions in considering the knowledge prong of a FLSA claim or as an equitable defense, holding “[i]f an employer knew or had reason to know that its employee underreported his hours, it cannot escape FLSA liability by asserting equitable defenses based on that underreporting. To hold otherwise would allow an employer to wield its superior bargaining power to pressure or even compel its employees to underreport their work hours, thus neutering the FLSA’s purposeful reallocation of that power.”

The real takeaway for the Bailey case is not necessarily that employers’ cannot point the finger at the employee to avoid liability under the FLSA – because this may still be a valid defense – but that employers can still be liable for unpaid overtime regardless of policies in place prohibiting working “off the clock” or requiring verification of employee time cards if supervisors are not enforcing the policies, demanding or encouraging violations of the policies, or working around the policies.

The FLSA is complex and many employers are surprised to learn they are not in compliance with the law. The attorneys at Buckley Brown can help you ensure that you are in compliance with the FLSA and defend you if claims arise.