It is well-established that employees are responsible for a vast amount of inventory theft—or shrink—that retail employers experience on a daily basis. Recognizing this fact, retail employers utilize various loss prevention policies, procedures, processes, and methods to combat internal theft and minimize its potential effect on the bottom line.
One such method is the use of security clearance checks, which, depending on the type of retailer, merchandise, and particular setting involved (i.e., retail store, distribution center), may include actions such as checking employee bags, requiring employees to empty pockets, or even requiring x-ray or other scans of employees and their personal items. Often these types of checks can be performed relatively quickly; however, on some occasions or in some settings, there may be a line or a wait before the process can be completed. While some employers may require employees to complete the security process while “on-the-clock,” other employers treat the time as noncompensable.
Employers that utilize security checks as part of their loss prevention program have come under fire recently, with employees claiming that they were not compensated for the time spent waiting to undergo and for the time spent undergoing the security checks. These employees claim that, by failing to pay them for this time, their employers have violated the Fair Labor Standards Act (FLSA) and/or applicable state wage and hour laws, with respect to minimum wage or overtime requirements.
On December 9, 2014, the Supreme Court of the United States issued a decision that should put an end to such claims, or at least to those brought under the FLSA. In Integrity Staffing Solutions, Inc. v. Busk, warehouse employees alleged that they were not paid overtime compensation in violation of the FLSA when they were required to undergo security clearances upon leaving the warehouse for the day and that they were required to wait in line in order to complete the security clearance process. The Court held that such time was not compensable under the FLSA because the waiting time and security clearance time were not “integral and indispensable” to the employees’ principal work activities. While the employees were required to submit to the security clearance process, this process was not directly related to their principal activities of locating items in the warehouse and preparing those items for shipment to the customers who had ordered them.
Retail employers that use security clearance checks as part of their loss prevention programs, and that do not compensate their employees for the time spent in connection with these processes, should find some comfort in this decision—that they are not, in fact, violating the FLSA and are likely to prevail against claims for compensation relating to the security clearance process under federal law. For most retailers, any security clearance check process that is implemented likely will align with the process at issue in Integrity Staffing in that the security clearance will not be integral and indispensable to the retail employees’ job duties. However, employers that utilize such a process—or that may be considering implementing a security clearance process—should consider other factors in determining whether or not to compensate employees for this time. Retail employers that have unionized or partially unionized workforces may find this issue becoming part of the collective bargaining process. Indeed, in Integrity Staffing, the Supreme Court specifically referenced that the bargaining table was the place for unionized employees to seek compensation for security clearance time.
Employers that pay employees at or close to the minimum wage, and are already under attack by union organizers who are protesting and lobbying for increased hourly wages, may find themselves more vulnerable to union organizing campaigns—which target employees who are dissatisfied with their work environments. Finally, the Supreme Court’s decision in Integrity Staffing, applies only to the FLSA. Individual states may have additional wage and hour laws that require compensation for the time spent performing or engaging in activities like security clearance checks.