An employee's violation of timekeeping policies is not a defense to a Fair Labor Standards Act claim, if the employer knows or has reason to know that an employee underreported his hours, according to a recent decision by the Eleventh Circuit Court of Appeals, Bailey v. TitleMax of Georgia, Case No. 14-11747 (11th Cir., January 15, 2015).

Santonia Bailey worked at a TitleMax store in Jonesboro, Georgia for about a year. He claimed that he worked overtime hours for which he was not paid. But his time records did not reflect overtime hours, in part because he underreported his own hours by working off the clock, and in part because his supervisor edited his time records. Bailey resigned from TitleMax and then filed suit for unpaid overtime under the FLSA.

In defense of Bailey's claim, TitleMax asserted that Bailey violated the company's policies that required employees to: (1) accurately report their hours; (2) regularly verify the time shown on their timecards; and (3) report any work-related problems to a supervisor, a higher-level manager, or an anonymous employee hotline. The company argued that Bailey's violation of its policies made him responsible for any unpaid overtime and barred his claim under the equitable defenses of "unclean hands" and "in pari delicto" (Latin for "in equal fault"). The district court agreed and granted summary judgment to TitleMax.

The Eleventh Circuit reversed the case on appeal. The court noted that "the goal of the FLSA is to counteract the inequality of bargaining power between employees and employers." This principle, according to the court, compelled a rejection of TitleMax's defense:

If an employer knew or had reason to know that its employee underreported his hours, it cannot escape FLSA liability by asserting equitable defenses based on that underreporting. To hold otherwise would allow an employer to wield its superior bargaining power to pressure or even compel its employees to underreport their work hours, thus neutering the FLSA's purposeful reallocation of that power.

The usual rules for FLSA overtime liability therefore applied to Bailey's claim. First, an employee must show that he worked unpaid overtime. Second, the employee must show that the employer knew or should have known of the overtime work. Bailey met both elements. There was no dispute that Bailey worked overtime hours for which he was not paid. And there was no dispute that his supervisor knew of his overtime work. "The supervisor's knowledge," the court noted, "may be imputed to TitleMax, making it liable for the FLSA violation."

TitleMax does not represent a change in the law. To the contrary, the Eleventh Circuit noted that TitleMax failed to identify any case in which the U.S. Supreme Court or any federal circuit court approved the use of equitable defenses to bar an employee's FLSA claim when the employer knew the employee underreported his hours. But TitleMax should serve as a reminder to employers that adopting rigorous timekeeping and pay policies is insufficient to avoid FLSA liability. Employers must ensure that their timekeeping and pay practices are also compliant with the FLSA. Pointing the finger at non-compliant employees is not a sound legal strategy.