A recent Alaska Supreme Court decision provides valuable guidance for employers doing business in Alaska on how to navigate complex wage and hour issues, including what is considered compensable time and when employers are required to pay liquidated damages for failing to properly comply with wage and hour laws. Because the court looked to the federal Fair Labor Standards Act (FLSA) for guidance and other similar state laws penalize employers with liquidated damages, the decision also provides important takeaways for Washington and Oregon employers.

The unanimous decision by the Alaska Supreme Court issued on December 14, 2018, involved the second appeal in Moody v. Royal Wolf Lodge, Opinion No. 7322. Lane Powell previously reported on the earlier decision holding that Moody was not exempt from Alaska’s overtime compensation law because he was a pilot who flew to a remote wilderness lodge and his primary duty — piloting an aircraft — did not require specialized academic training. Moody v. Royal Wolf Lodge, 339 P. 3d 636 (Alaska 2014).

On remand, the trial court judge ruled after a four-day bench trial that:

  1. Moody was “waiting to be engaged” rather than “engaged to wait,” so his waiting time was not compensable;
  2. Moody was entitled to overtime compensation only for hours that he actually worked beyond 40 hours a week or 8 hours a day, consistent with Alaska law:
  3. Moody worked only 6.4 hours of actual overtime during the two-year period;
  4. The employer’s determination not to pay overtime compensation was made in good faith, so the court declined to award the statutory liquidated damages penalty; and
  5. The employer was not entitled to recover attorney’s fees because Moody had pursued his overtime claim in good faith, even though he ultimately recovered only nominal damages.

The Alaska Supreme Court affirmed on all issues, but sent the case back to the trial court to determine whether the employer acted in subjective good faith so as to avoid statutory liquidated damages.

The Court’s opinion provides employers operating in Alaska at least four significant takeaways:

1.Employers face substantial exposure for misclassifying employees. The pilot worked for six years, and sued for overtime only after he was not hired back for a seventh season. This is the consistent pattern in most individual overtime claims — they are not brought until after employment has terminated. Because the FLSA and Alaska statutes of limitation allows the employee to recover back pay for two years (or three years, if employer’s actions are willful), an employer’s improper exemption decision can create substantial exposure for back pay plus prejudgment interest, statutory liquidated damages and attorney’s fees. Thus, employers should carefully weigh whether an employee is truly exempt from overtime compensation requirements under both federal and state law.

2.Alaska applies FLSA factors developed by the Ninth Circuit to determine whether waiting time is compensable. To determine if an employee is “engaged to wait,” and entitled to compensation for the time waiting, Alaska courts consider (1) the actual agreement of the parties and (2) the degree to which the employee is free to engage in personal activities. The Court applies the seven factor test under the FLSA from Owens v. Local No. 169, Association of Western Pulp and Paper Workers, 971 F.2d 347 (9th Cir. 1992), to determine the employee’s degree of personal freedom during wait periods. In this case, even though Moody was required to live on premises in a very remote location, he was largely free to come and go between work periods, he could engage in personal activity (including hunting, fishing and hiking) during waiting time, disruption was not frequent and he had a largely set schedule. The Court thus found he was not engaged to wait, and thus was not entitled to be paid for non-working time. A clear employment contract describing employment duties and setting out the employee’s “personal freedom” during non-working hours can limit the risk of the employer being responsible to pay for non-working hours.

3.Liquidated damages may be awarded doubling the exposure, absent employer good faith. The liquidated damages penalty available under Alaska Statute 23.10.110(d) doubles the amount an employer must pay an employee who was not properly paid required overtime compensation unless the employer can show it acted in good faith and reasonably believed it was not violating overtime compensation requirements. In this case, the employer provided no evidence that it sought an opinion from the Alaska Department of Labor or from its own legal counsel regarding compliance with the overtime compensation law. The Court remanded for further findings on this issue. The takeaway? Employers should seek an opinion from the Department of Labor or its own legal counsel in advance to establish it has acted in good faith.

4.Even when they prevail, employers have little chance of recovering their own attorney’s fees. In most situations, even if the employer prevails, it cannot recover its attorney’s fees from the losing employee. In this case, Moody sought unpaid overtime for at least 32 hours a week for a two-year period. He was awarded only 6.4 hours of unpaid overtime. Clearly, the employer prevailed. Even if the employer is awarded attorney’s fees under Alaska’s prevailing party rule (Civil Rule 82), former employees are unlikely to be able to pay any judgment and may therefore be judgment proof. Moreover, in most cases, if the employee can prove the claim was pursued in good faith and that the employee had “reasonable grounds for believing” the employer had violated the overtime compensation law, no attorney’s fees will be awarded to the prevailing employer. Employers should carefully consider if an early settlement is more advantageous than the cost of years of litigation, even if the overtime claims are baseless.