Wage and hour lawsuits are very popular with plaintiffs’ employment lawyers these days. Under the Fair Labor Standards Act (FLSA), the general rule is that, if an employer "knows or has reason to believe" that employees are working overtime, they must be paid the overtime rate. For employers in Kentucky, Ohio, Tennessee and Michigan, i.e., states inside the area covered by the Sixth Circuit Court of Appeals, the court recently decided that an employer has a "reason to believe," or has constructive knowledge of something, when the employer "should have discovered it through the exercise of reasonable diligence." The Sixth Circuit recently adopted this reasonable diligence standard for FLSA cases.

The Sixth Circuit has previously ruled that employees "bear some responsibility for the proper implementation" of the FLSA. Employers are not expected to be omniscient and, where an employee fails to notify the employer of overtime worked, or deliberately prevents the employer from learning about overtime work, the employer's failure to pay overtime is not a violation of the FLSA. An employer is also allowed to implement a reasonable time reporting procedure to keep track of hours. Thus, if an employee fails to follow the established process for reporting time when she is fully aware of the reporting process, an employer would not be liable for failing to pay overtime.

In a recent case, however, the Court found that this is not an absolute bar to recovery. There are two exceptions to the rule: when an employer prevents employees from reporting overtime or it is otherwise notified that employees are not reporting overtime work and it fails to act or pay them. In those circumstances, employers are still liable for unpaid overtime.

The latter circumstance is the one that employers may face more often as, for example, when untrained supervisors do not report their knowledge that employees are working overtime. Training of supervisors and monitoring payroll are keys to managing this risk.