On October 13, 2017, the Court of Appeals for the Third Circuit held that short breaks during the work day of 20 minutes or fewer are compensable as a “bright-line rule” under the Fair Labor Standards Act (“FLSA”). The case, DOL v. American Future Systems, et al., arose out of the employer’s policy of withholding compensation for any breaks in excess of 90 seconds. Under the employer’s “flexible” break policy, employees were permitted to log out of their computer at their workstation at any time, for any reason, for any length of time, as often as they wished. If they remained logged off for more than 90 seconds, however, they would not be paid for any part of the time they remained logged off. In other words, even if employees logged out to use the restroom or get a cup of water, they would not be paid if they could not make it back to their computer and log back in within 90 seconds.
The Department of Labor (“DOL”) filed suit against the company, alleging a violation of the FLSA based on the DOL’s interpretation of its own regulation regarding short rest periods, 29 C.F.R. § 785.18. That regulation provides that “[r]est periods of short duration, running from 5 minutes to about 20 minutes, are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked.” The District Court granted summary judgment to the DOL, upholding the regulation and awarding grant of liquidated damages. The District Court specifically rejected the company’s assertion that its flexible, unpaid break policy was implemented in a good faith attempt to comply with the FLSA. American Future Systems appealed the decision, arguing that an individualized assessment of the purpose behind each break – specifically, whether the break was more for the employee’s benefit or the employer’s benefit – should govern whether the break is compensable or not, and that because it sought legal advice prior to implementing its rule, it acted in good faith and should not be liable for liquidated damages.
The Third Circuit affirmed, citing with approval the decisions of other federal courts of appeal construing this regulation as a bright-line rule, as well as several state laws requiring employers to compensate employees for short breaks. See Mitchell v. Greinetz, 235 F.2d 621, 625 (10th Cir. 1956). In rejecting the employer’s argument, the court observed that short breaks are beneficial to both employees and employers because they encourage productivity, and that it would be administratively burdensome to determine whether each break of short duration ought to be compensable. Although the court acknowledged that strict enforcement of 29 C.F.R. § 785.18 as a bright-line rule could potentially result in employees taking an unlimited amount of breaks during the work day, the court noted that the employer has adequate recourse to address this result by changing its policy and/or disciplining its employees who abuse it, including through termination; but noted that the employer may not withhold compensation for these breaks as a means of addressing the issue.
The Third Circuit’s opinion is also notable for its discussion of the standard of proof employers bear to establish a “good faith” violation of the FLSA. The employer argued that it had made good faith efforts to comply with the FLSA by reviewing the statute and applicable regulations, as well as case law, and seeking advice from counsel in creating its policies. The employer refused, however, to waive its attorney-client privilege with respect to the legal advice it received on this matter. Without that disclosure, the court concluded that it could assume that the employer implemented its policy against the advice of counsel, and that the employer had been advised its policy might be in violation of the FLSA under the weight of existing case law and clear DOL guidance, setting forth a bright-line rule of compensable breaks of 20 minutes or fewer.
The Third Circuit’s ruling both confirms the DOL’s interpretation of an existing regulation, and should also serve as a cautionary tale to employers who choose to challenge the DOL’s interpretations – doing so runs the risk of a finding that the employer has violated the statute and an award of liquidated damages. The ruling indicates that employers who wish to establish good faith based on the advice of counsel must be prepared to waive the attorney-client privilege as to that advice.