Workplace Labor Update - FLSA Violations – January 1994

A federal trial court in Maryland recently awarded double damages under the Fair Labor Standards Act ("FLSA") against an employer who docked the pay of exempt employees for fractions of days missed and who failed to pay employees for lunch breaks during which they were required to work. Martin v. Southern Maryland Hosp., Inc., Civil Action No. MJG-87-3141 (D. Md. July 14, 1993). Under the FLSA, any employee working over 40 hours per week must receive compensation for this extra time at a rate not less than one and one half times the regular rate at which he is employed. An exemption to this rule is provided for individuals employed in executive, administrative or professional capacities. An employer is not required by the FLSA to pay overtime to such employees who are paid on a "salary basis" as defined by the regulations. Subject to certain exceptions, to be paid on a salary basis, the employee must receive her full salary for any week in which she performed any work without regard to the total number of days or hours worked. Southern Maryland Hospital, Inc. ("Hospital") had a practice of docking exempt employees' pay for any time worked under 80 hours per two week pay period. As a result, the Secretary of Labor filed an FLSA lawsuit on behalf of affected Hospital employees. The Labor Department argued that since the FLSA regulations do not allow employers to dock the pay of exempt employees for absences of less than one day, the Hospital was not entitled to take advantage of the overtime exemption. The court agreed, holding that because the Hospital made deductions from the pay of exempt employees for fractions of days missed, the employees were not exempt and the Hospital was liable for overtime pay to them. The Hospital responded that the exemption was not lost since the employees were later reimbursed for these part day deductions. The court rejected this argument, finding that this "escape hatch" is only available for inadvertent deductions, not deductions made in a systematic manner as the Hospital did. The Labor Department also argued that the Hospital owed employees back pay for the time it required them to work during their lunch breaks without pay. The court found that some nurses filled out patients' charts during lunch and some were required to remain at their desks to cover the phone while eating lunch. Because the employees were not relieved of their work duties during lunch, according to the court, their freedom of movement was restricted, and therefore, the lunch breaks were not bona fide. Hence, these employees were entitled to compensation for the lunch breaks during which they were required to work. The court also concluded that there was significant evidence demonstrating that the Hospital recklessly disregarded its obligations under the FLSA and was aware that many of its pay practices violated the FLSA. As a result, the court determined that the Hospital's FLSA violations were "willful" and therefore the plaintiffs were entitled to double damages. Given the complexity of the FLSA regulations and the potential for large back pay awards, employers are well advised to designate an FLSA specialist in their organization to spot issues and to consult with competent labor counsel when confronted with tricky issues.