Written by Gary G. Goyette, Esq.
For some employers, having their hourly, non-exempt employees work ‘off-the-clock’ (or “OTC” time) for no pay during periods of time prior to or following scheduled work shifts is a long-standing tradition. For others, it appears to be a product of the recent economic downturn. Either way, many employees are expected to work – – for no pay – – during portions of time preceding or following their scheduled work shifts, and to do so without complaining and without contending they are owed any pay – – straight time or overtime – – to perform the OTC tasks. Is this legal? For the most part, ‘NO’; both federal wage law and California wage law require employers to provide at least minimum wage pay, and depending on the circumstances, overtime pay, for all work performed by employees. Even for small amounts of OTC time.
While the legal standards are somewhat different under federal wage law versus state wage law, both apply fairly strict limitations on employers receiving any benefit from any work performed by employees without having to pay the employees for all time worked. Whether from the employer who is trying to stay in business, or from the employee who doesn’t want to ‘make waves’ and willingly incurs the OTC time, various ‘what if’ questions regarding OTC time commonly arise.
What if the employer ‘does not know’ the employees are working off-the-clock?
How can an employer, especially a large business or a large public entity, be responsible for paying for OTC time if they do not know their employees are working outside scheduled shifts? First, under California Labor Code § 1174 it is the employer’s responsibility to maintain accurate written records of all hours worked by each employee, each day, and of all pay for these hours. It is not the employee’s job to keep records of his or her time worked.
Second, the controlling factor is not whether the employer knew or did not know of the OTC time being incurred; rather, if the employer gains any benefit from the OTC tasks performed, and in any manner ‘allows’ the OTC tasks to be performed, the employer is liable for this time. Both California wage law and the federal Fair Labor Standards Act (FLSA) stress that if the employee is ‘suffered or permitted’ to work, the OTC time is ‘hours worked’ for which pay must be provided. Regulations and published case law associated with the federal FLSA emphasize that any work not requested but permitted by the employer – – whether done at the usual workplace or at the employee’s home – – is work time, and that it is the duty of the management to exercise its control and see that the work is not performed if the employer does not want it to be performed. 29 C.F.R. § 785.11 – 13. Federal Courts have stressed that “an employer who knows or should have known that an employee is or was working overtime must comply with the provisions of [the FLSA].  An employer who is armed with this knowledge cannot stand idly by and allow an employee to perform overtime work without proper compensation, even if the employee does not make a claim for the overtime compensation.” Forrester v. Roth’s I.G.A. Foodliner, Inc. (9th Cir. 1981) 646 F.2d 413, 414.
California wage law is even broader; as determined by the California Supreme Court, ‘hours worked’ are either “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 582. Even when an employee is not working, but is subject to the control of the employer, the time is ‘hours worked’ for which pay must be provided.
Therefore the ‘I didn’t know my employees were working off-the-clock’ claim by an employer rarely carries much weight. If any employee incurs OTC time and is ‘suffered or permitted’ to work by the employer, whether or not the work was requested by the employer, the OTC time is ‘hours worked’. If any employee incurs OTC time under the control of the employer, such time is ‘hours worked’ whether or not any work is performed. If the employer knows or should have known of the OTC tasks being performed, all OTC time is ‘hours worked’ for which the employer must provide pay.
What if the employer has a clear written policy in place prohibiting any work outside paid shift hours?
Even a clear, written policy prohibiting work by any employee outside exact scheduled work shift hours may not relieve the employer from the obligation to pay for all OTC time. Such policy certainly provides the basis for disciplining (or even terminating) any employee disregarding the policy, and such policy may provide evidence to help the employer show they did know nor should they have known that employees were incurring OTC time, but the legal standard remains the same. As recently set forth by a federal Court in California, “[a]n employer’s knowledge of overtime hours worked is measured in accordance with his duty to inquire into the conditions prevailing in his business. This duty cannot be avoided simply because the business precludes his personal supervision and compels reliance on subordinates. In reviewing the extent of an employer’s awareness, a court need only inquire whether the circumstances were such that the employer either had knowledge of overtime hours being worked or else had the opportunity through reasonable diligence to acquire such knowledge.Ketchum v. City of Vallejo (E.D. Cal. 2007) 523 F.Supp.2d 1150, 1163. A policy prohibiting OTC work must be accompanied by reasonable diligence exercised by the employer to find out if employees are complying with such policy before liability for OTC time incurred can be avoided.
What if the amount of OTC time is small – – do small amounts of time really count as ‘hours worked’ for which pay must be provided?
If the actual amount of OTC time incurred each day by nonexempt, hourly employees either prior to and/or following their scheduled work shifts is small – – sometimes referred to as ‘de minimus’ – – is there any exception to the employer’s obligation to pay for such time? Maybe, but employers should not count on it.
First, while the idea of de minimus amounts of time being noncompensable under the FLSA has been addressed by federal courts, there is no agreement on how many minutes per day constitute a de minimus amount of time. In Lindow v. United States (1984) 738 F.2d 1057, the Ninth Circuit Court of appeal did set forth a three factor test to determine work activities which are de minimus and are therefore not compensable under the FLSA. These factors are: (1) the administrative difficulty of recording the time required for the work activities; (2) the size of the claim in aggregate represented by the work activities; and (3) whether the work activities occur on a regular basis. Despite this three factor test being articulated by the court, however, no ‘bright line’ rule has defined how many minutes per day are de minimus under the FLSA. Published cases have held that less than ten minutes per day is not de-minimus. Chao v. Tyson Foods, Inc., 568 F.Supp.2d 1300 (2008). Further, regulations clarifying the FLSA statutory provisions emphasize that small amounts of time are not compensable “only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities. An employer may not arbitrarily fail to count as hours worked any part, however small, of the employee’s fixed or regular working time or practically ascertainable period of time he isregularly required to spend on duties assigned to him.” 29 C.F.R. § 785.47
Further, as noted below, even if small amounts of OTC time per day qualified as ‘de minimus’ under the federal FLSA, such time may still be ‘hours worked’ for which minimum wages under California wage law must be provided. The safe approach for employers is to treat any amount of OTC time as ‘hours worked.’
What if, on average, minimum wage rates are paid – – isn’t some unpaid OTC time O.K. as long as minimum wages are provided?
Lastly, California employers, including public entities, may rely on the idea that small amounts of unpaid OTC time do not cause liability because in any given pay period the total compensation provided, spread out over the total hours worked during that pay period, result in an hourly rate which far exceeds the required minimum wage rate. Such theory also does not excuse providing zero pay for OTC time.
Under federal minimum wage requirements, such ‘averaging’ to compute hourly wage rates against minimum wage requirements is allowable. Under California’s minimum wage requirements – – which are applicable to public employees – – however, such averaging is not allowed. Rather, the state-mandated minimum wages under California Labor Code §§ 1182.11 – 12 must be provided for all hours worked. As set forth in multiple published cases, “[a]lthough an averaging method may be lawful under the federal Fair Labor Standards Act and although California labor law was partially patterned on federal law, the California statutes ‘reveal [ ] a clear legislative intent to protect the minimum wage rights of California employees to a greater extent than federally.’The court observed that California Wage Order No. 4, which is the relevant state regulation, provided that employees be paid not less than the minimum wage ‘for all hours worked,’ evincing the intent that employees be paid for each hour worked.” Ontiveros v. Zamora (E.D. Cal. 2009) 2009 WL 425962 at *3-4 (citing to Armenta v. Osmose, Inc. (2006) 135 Cal. App. 4th 314, 323 – 324).
Further, separate and apart from satisfying state minimum wage requirements, employers must ensure that for unionized employees under collective bargaining agreements (CBAs) any amount of OTC time incurred complies with the overtime pay requirements established through these agreements and/or through customs and practices. California wage law provides the statutory basis for employees to seek overtime pay if employers are not complying with bargained-for overtime pay. CA Labor Code §§ 222 & 223. In turn, even small amounts of OTC time outside employees’ regularly scheduled hours may trigger the overtime pay provisions set forth in CBA provisions or customs and practices by the employer. Unless such provisions have an exception for de minimus amounts of OTC time, overtime liability through CBAs, enforceable through state wage law, can arise.
In conclusion, both state and federal wage law require employers to provide pay for all OTC time. It is the responsibility of the employer to keep records of all hours worked, and to either pay for all OTC time as hours worked or to use reasonable diligence to make sure employees are not working at all outside scheduled hours to incur any OTC time. Under federal and state wage law the issue is not whether the employer knew of the OTC time, whether the amount of OTC time incurred is small, or even whether the employer prohibits such time through its policies. Rather, if OTC time is incurred by employees, with very few exceptions employers simply must pay for all such time.
These federal and state requirements to pay for all OTC time do not apply, of course, to salaried ‘exempt’ employees, since such employees generally agree to work whatever time is needed to perform their duties in exchange for a set, annual salary. Employers should not, however, think that OTC issues can be resolved simply by classifying employees as ‘exempt’; only employees meeting the multiple requirements for one of the available types of ‘exempt’ employees can be paid a set annual salary without specifically accounting for pay for all hours worked. The ‘tests’ for whether employees may properly be classified as ‘exempt’ are varied – – but that is the subject of a different article.