Employers sometimes rely on equitable arguments, such as “unclean hands” (which asserts that it would not be fair to hold an employer liable when the employee’s actions caused or contributed to his own injury or damages). But the United States Court of Appeals for the Eleventh Circuit (covering Alabama, Florida and Georgia) recently decided that an employee may still be permitted to pursue an overtime claim under the Fair Labor Standards Act (FLSA), even when that employee knowingly violated company policies by underreporting hours worked.
As we discussed last fall, an employer can be liable for wages under the FLSA for “suffering or permitting” an employee to work. Knowledge of such hours worked is sometimes reduced to “constructive knowledge,” or the idea that the employer knew or should have known the employee was working more hours than those reflected in his time cards. In the recent Eleventh Circuit case, the employee alleged his supervisor told him that the company did not pay overtime, encouraged him to work off the clock, and altered his time cards to decrease the number of hours reported. Despite the company’s policies requiring employees to accurately report all hours worked, to regularly verify time entries, and to inform higher-level management or call an anonymous employee hotline if there was a problem at work with a supervisor, the employee in the case failed to notify anyone of his supervisor’s instructions and, instead, regularly worked off the clock and underreported hours worked on his time cards.
After resigning, the employee filed suit under the FLSA, claiming he failed to receive overtime for hours worked. He alleged that his employer knew or should have known of the overtime worked because his supervisor told him to work off the clock and modified his time cards to reduce the reported number of hours worked. In response, the employer argued that the employee had “unclean hands,” and that because he knowingly violated company policies and underreported his hours worked, he bore responsibility for his own injury. While the trial court initially agreed with the employer, the Eleventh Circuit disagreed and found that a supervisor’s constructive knowledge — awareness that an employee was working overtime hours and not reporting those hours — could be imputed to the employer, making it liable for claims brought under the FLSA. More specifically, the Eleventh Circuit focused on the supervisor’s own actions, such as instructing the employee to underreport and personally modifying the time entries, and distinguished such actions from situations where the employer has no knowledge — whether it is actual or constructive — that an employee is underreporting hours.
The Eleventh Circuit’s decision reminds employers they are responsible for the actions of their supervisors, and confirms that such actions can trump the equitable defenses that an employer may have in a wage and hour claim. While it remains key to have written policies clearly stating that employees must report all hours worked, it is equally important for employers to remember such policies are not “get out of jail free” cards, and that the instructions of managers and supervisors must align with company policies. Employers can better defend against wage and hour claims if they routinely audit the practices of all supervisory personnel and ensure that their actions are in accordance with the company’s policies and procedures.