California employers have long struggled with litigation regarding meal and rest periods; however, a recent case from Pennsylvania reveals they are not alone. A Pennsylvania company, American Future Systems, Inc., which does business as Progressive Business Publications, must pay 6,000 current and former workers an estimated $1.75 million in back wages arising from violations of the Fair Labor Standards Act (FLSA).
The FLSA applies to employers whose annual sales total $500,000 or more or who are engaged in “interstate commerce.” While this might seem to only cover large employers, in reality, the FLSA applies to nearly every employer because the courts have attached a broad meaning to the term “interstate commerce.” For example, companies that regularly use the U.S. mail to send or receive letters to and from other states are engaged in interstate commerce. If your employees use company telephones or computers to place or accept interstate business calls or take orders, that is likely also interstate commerce. Practically anything connected to our modern economy will be considered involved in interstate commerce.
In December, in Perez v. American Future Systems, Inc., No. 12-6171 (E.D. Pa. Dec. 16, 2015), the court granted summary judgment to the United States Department of Labor (DOL). The case arose from Progressive’s policy that employees of its telemarketing centers in Pennsylvania, New Jersey and Ohio must “log off” the computer systems, and thus not be paid, during any break taken through the workday, including breaks of 20 minutes or less. Progressive said that the policy was intended to facilitate a flexible environment where workers could “come and go as they pleased.” However, the DOL informed Progressive that it had to compensate employees for breaks of twenty minutes or less and that its policy of not paying for those breaks resulted in violations of the FLSA’s minimum wage requirements. When Progressive did not comply, the DOL sued Progressive to force compliance.
Although the FLSA does not require an employer to provide meal or rest breaks, the DOL argued that Progressive’s conduct violated Section 785.18 of the FLSA’s regulations. That section states, “Rest periods of short duration, running from 5 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.”
Progressive maintained that the court instead should apply Section 785.16 to Progressive’s break policy. Section 785.16 states, “Periods during which an employee is completely relieved from duty and which are long enough to enable him to use the time effectively for his own purposes are not hours worked. He is not completely relieved from duty and cannot use the time effectively for his own purposes unless he is definitely told in advance that he may leave the job and that he will not have to commence work until a definitely specified hour has arrived. Whether the time is long enough to enable him to use the time effectively for his own purposes depends upon all of the facts and circumstances of the case.” Progressive argued that because the employees use the breaks for their own purposes and have discretion in if, when, and for how long they take breaks, then the breaks are not compensable time for purposes of the FLSA.
The court disagreed with Progressive and ruled that Progressive violated the FLSA’s minimum wage requirements. The court ruled that section 785.18, not 785.16, is the appropriate rule for determining whether the breaks should be paid. He reasoned that although the rule is interpretative and does not have the force and effect of law, it should be given substantial deference. The court explained that the predecessor to section 785.18 was sufficiently contemporaneous with the passage of the FLSA and was a rule that was “both longstanding and unchanging.” Moreover, other pronouncements by the DOL were consistent with the rule that had been announced in Section 785.18 and the rule comported with the language and purposes of the Act. The court reasoned that “[b]y ensuring that employees do not have their wages withheld when they take short breaks of 20 minutes or less to visit the bathroom, stretch their legs, or get a cup of coffee, or simply to clear their head after a difficult stretch of work, the regulation undoubtedly protected employee health and general well-being by not dissuading employees from taking such breaks when they are needed.”
Although the Third Circuit has not clearly applied section 785.18 as a bright-line rule in determining compensability, decisions from district courts in New York, Nebraska, Ohio, Arkansas, Wisconsin, Indiana were persuasive to convince the court that section 785.18 should be applied as a bright-line rule to determine the compensability of short workday rest periods of 20 minutes or less. The court also found that liquidated damages were warranted because Progressive failed to “demonstrate that [it] had an honest intention to ascertain and follow the dictates of the FLSA.”
The decision will likely be appealed, but until then employers covered by the FLSA should continue to pay employees for all breaks of 20 minutes or less. The time must be included in the sum of hours worked and considered when determining overtime. Employers who fail to pay employees for these short breaks may be liable to employees for back wages and an equal amount in liquidated damages.
Contributor: Jessica A. Schoendienst, Law Clerk | Weintraub Tobin