Seventh Circuit Holds Employer Not Liable Under FLSA for Employee’s Off-The-Clock Work

On December 14, 2011, the U.S. Court of Appeals for the Seventh Circuit held in Kellar v. Summit Seating Inc., ____ F.3d ____ (7th Cir. 2011), that a former employee who claimed she worked 15 to 45 minutes every day without pay before the start of her scheduled shift failed to make out a claim for back pay under the Fair Labor Standards Act (FLSA) and Indiana Wage Payment Statute. In reaching this decision, the court found that there was no evidence that her employer knew or had reason to know she was performing this work.

Factual Background

Summit Seating is a small company that manufactures seating for buses, trucks, and vans. Susan Kellar was employed by Summit as a sewing manager. In that position, she supervised seven to eight other employees and was paid on an hourly basis.

After Kellar resigned, she sued Summit under the FLSA and Indiana’s wage payment law alleging that she regularly arrived at the factory 15 to 45 minutes before the start of her 5:00 a.m. shift and spent most of that time working without pay. Kellar claimed that during this pre-shift time, she reviewed employee schedules, gathered and distributed fabric and materials to her subordinates’ workstations, prepared models for production, cleaned work areas, and checked patterns. Kellar admitted no one told her to arrive early. Kellar claimed, however, that she had done so for Summit’s benefit.

Legal Analysis

The question on appeal was whether Kellar’s alleged pre-shift work was compensable time under the FLSA and Indiana’s wage payment law. The Seventh Circuit Court of Appeals considered three arguments on the issue.

First, the court rejected Summit’s position that Kellar’s alleged pre-shift work was merely “preliminary” activity under the Portal-to-Portal Act of 1947. Under the Portal-to-Portal Act, activities that are “preliminary” to an employee’s “principal” activities are not compensable. Although the distinction between a “preliminary” and “principal” activity can be hazy, the U.S. Supreme Court has explained that an activity that is “an integral and indispensable part of [an employee’s] principal activities” is itself a principal activity and thus compensable. Following this precedent, the Seventh Circuit found that Kellar’s alleged pre-shift activities (such as reviewing work schedules and gathering and distributing fabric and materials) were “integral and indispensable” to her work as a sewing manager and thus not “preliminary.”

Second, the court concluded that Kellar’s alleged pre-shift work could not be disregarded as de minimis. Under the de minimis doctrine, employers will not be deemed liable under the FLSA for otherwise compensable work when only a few seconds or minutes beyond the scheduled working hours are in dispute. However, to invoke the protections of this doctrine, employers must show that the amount of extra time at issue is small and that there would be practical administrative difficulties in recording that additional time. Applying this doctrine, the Seventh Circuit concluded that Kellar’s time could not be treated as merely de minimis because she alleged it was up to 45 minutes daily, which was substantial, both each day and in the aggregate. The Seventh Circuit noted that Summit failed to cite any case in which a court had deemed time in excess of 10 to 15 minutes de minimis.

Finally, the Seventh Circuit concluded that Summit was nevertheless not liable for Kellar’s alleged pre-shift work because she failed to show the company knew of the work or had reason to know of it. The court explained that as a general rule, if an employer does not want work to be performed, it must exercise its control to see that the work is not performed. Otherwise, the employer must pay for it. According to the court, the employer “cannot sit back and accept the benefits [of employees’ work] without compensating for them.” Thus, an employer typically must pay for work “even where the employer has not requested the overtime be performed or does not desire the employee to work, or where the employee fails to report his overtime hours.” At the same time, courts have recognized that the FLSA does not go so far as to require an employer to pay for work about which it did not know and had no reason to know.

Following these principles, the Seventh Circuit noted that Kellar’s own supervisors, the two owners of the company, never personally observed her working prior to her 5:00 a.m. shift, because they typically did not get into work until 7:00 or 8:00 a.m. In addition, many Summit employees were in the habit of clocking in early before their scheduled shifts and socializing until their start times. Thus, even when Kellar clocked in early, her employer had no reason to believe she was working rather than socializing like her colleagues.

There were also no red flags that should have alerted Summit to inquire further whether Kellar might be working off-the-clock. For instance, when Kellar forgot to punch in and instead wrote her start time on her timecards by hand, she wrote the time for the start of her scheduled shift, not an earlier time. Kellar also never mentioned to the company’s owners or any other managers that she was working early off-the-clock. Finally, Kellar was aware of Summit’s policy prohibiting overtime work without prior permission and had even reprimanded another employee once for clocking in early. Under these circumstances, the court agreed that Summit had no reason to know or suspect that Kellar was working before her shift. Because Kellar’s wage payment claim under Indiana law was derivative of her FLSA claim, it failed for the same reasons. Thus, the Seventh Circuit affirmed summary judgment on both claims in Summit’s favor.

Practical Impact

According to Steven Pockrass, Co-Chair of Ogletree Deakins’ Wage and Hour Practice Group, the Seventh Circuit’s decision in this case is somewhat unusual. “When employers argue on summary judgment that they did not know an employee was performing alleged off-the-clock work, the courts often find that a question of fact exists. This is true even in cases when time cards would seem to show no off-the-clock work, as the employees may allege that one or more managers ordered them or even just observed them working off-the-clock, that more work was allegedly getting done than could have reasonably occurred during the reported working time, or that other documents or computer data should have placed the employer on notice that work was being performed outside recorded working time. In this case, the Seventh Circuit advanced the law by looking more closely at whether it truly was reasonable to think that the employer knew or should have known that the employee allegedly was working. Although employers should not let down their guard after Kellar, this decision should create a more level playing field for employers. Particularly in today’s highly litigious environment, disgruntled former employees should not get a free ride when they allege for the first time after termination that they engaged in off-the-clock work while employed.”

Christopher Murray, a shareholder in Ogletree Deakins’ Indianapolis office, further observed that employers must continue to be vigilant in controlling non-exempt employees’ working time. “Kellar is a positive development. But employers must still be careful in dealing with unauthorized work by non-exempt employees. An employer should have a good policy on when overtime work is permitted and should discipline employees who violate that policy, while still paying them for any work performed in compliance with applicable wage laws. At the same time, employers need to be wary of putting non-exempt employees in positions where there is a substantial risk that they will perform off-the-clock work. This is increasingly an issue where modern technology allows non-exempt employees to perform work-related activities outside usual working hours, such as responding to emails on Blackberrys and other mobile devices in the evenings and on weekends. Employers will have a hard time showing that they did not know such work was being performed. As a result, employers must either prevent that kind of activity from happening through effective policies or ensure that they are paying employees for any such non-de minimis work.”