Second Circuit: Knowledge of Overtime Work, Not Knowledge of Non-Payment for Such Work, Is What Matters for FLSA Liability

by Gregory Feit

On August 25, 2023, in Perry et al. v. City of New York,[1] the United States Court of Appeals for the Second Circuit held that if an employer requires overtime work, knows about it, or should have known about it through reasonable diligence, then the employer is liable to the employee under federal law for any unpaid overtime “even if the employee failed to report the work and even if the employer did not know that the employee was working unpaid.”

The Second Circuit’s holding confirms that the determinative issue for liability under the Fair Labor Standards Act (the “FLSA”)[2] is an employer’s knowledge of overtime work, not its knowledge that employees are not being paid for such work.

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In Perry, the City of New York (the “City”) challenged a nearly $18 million judgment that had been entered against it in favor of a group of over 2,500 Fire Department EMTs and paramedics.  This plaintiffs group claimed that the City had violated the FLSA by failing to pay for pre- and post-shift work that was required under City policy or practice, such as inspecting equipment.

The FLSA provides that “no employer shall employ any of his employees . . . for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.”[3]  As defined by the FLSA, to “employ” means to “suffer or permit to work,” and this encompasses work that the employer requires, knows about, or should have known about through the exercise of reasonable diligence (i.e., constructive knowledge).

The City had an electronic timekeeping and payroll system requiring the EMTs and paramedics to report any overtime work in order to claim and receive compensation for any such work, and also requiring that they certify on weekly timecards that they had requested compensation for any overtime work.

Although the Perry court acknowledged that employee reporting can certainly be relevant to whether an employer knew or constructively knew of overtime work, it recognized the well-established Second Circuit rule (similar to that of multiple other Circuits) that an employee’s failure to report overtime work cannot insulate an employer from FLSA liability if the employer was on notice of such work.

What was new in the Perry holding is the court’s rejection of what it saw as the City’s argument that “an employer cannot be held liable for unpaid, unreported overtime work unless it knew that the employee would not be paid, even if it required or knew about the work” (emphasis in original).  In rejecting the City’s argument, the Perry court concluded instead that knowledge of non-payment is irrelevant to FLSA liability.

The court reasoned as follows: (1) the text of the FLSA itself does not include the additional precondition for liability suggested by the City; (2) employees cannot waive FLSA protections, yet the City’s position would be “tantamount” to allowing waiver through an employee’s failure to report overtime work that an employer knows about; and (3) the City’s position would eliminate the significant distinction under the FLSA between ordinary violations and “willful” violations (when employers know or recklessly disregard whether they are not paying for compensable work, which subjects them to special civil penalties), since every violation would be willful if employers could only be liable if they know they are failing to pay overtime.

Having rejected the City’s proposed rule, the Perry court went on to confirm the jury’s findings that the City had a policy or practice of requiring overtime work and that the City had willfully violated the law, ultimately upholding the judgment in its entirety.

Takeaways for Employers

Timekeeping and payroll systems requiring that employees report their overtime work remain useful in mitigating FLSA risks.  Indeed, as Perry acknowledged, having reporting processes in place for employee overtime will often serve as a way of exercising reasonable diligence, precluding a charge of constructive knowledge of unreported work.  (Often, but not always – e.g., when an employer prevents or discourages accurate reporting in practice.)

But while such systems might support an employer’s reasonable belief that its employees are actually being compensated for any overtime work, whether an employer knows or not that its employees are being paid for such work is entirely irrelevant for determining FLSA liability (but not irrelevant as to the willfulness of a violation).  If an employer requires, knows about, or should know about overtime work, it will not be absolved of FLSA liability for the overtime hours.

 

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Attorney Gregory Feit who counsels clients on employment law, litigation, arbitration, negotiation, and trial advocacy. Mr. Feit is admitted to practice in New York.

 

 

[1] Perry et al. v. City of New York, Docket No. 21-2095.

[2] 29 U.S.C. §§ 201–219.

[3] The FLSA includes exemptions for many employees, as well as certain alternative overtime rules for certain professions.