In a case of first impression for the Fifth Circuit Court of Appeals, a Fifth Circuit panel has ruled that it is the employee, not the employer, who has the burden to establish that bonus payments are non-discretionary and, therefore, must be included in the regular rate of pay for computation of overtime under the Fair Labor Standards Act (“FLSA”). Joshua Edwards, et al. v. 4JLJ LLC, et al., Case Number 19-40553 (5th Cir. September 3, 2020).

Under the FLSA, a non-exempt employee’s regular rate is the hourly rate actually paid to that employee for all remuneration. Section 207(e)(3) of the FLSA provides that some remuneration, such as a bonus, is not included in the employee’s regular rate if the payment is to be made – and the amount of the payment are determined – at the “sole discretion” of the employer, and not pursuant to a written agreement.

In an FLSA dispute, an employee generally bears the burden to prove all elements of that employee’s claims. But if the employer wants to show that an employee is exempt from an FLSA requirement, the employer has the burden of proof on that exemption.

In 4JLJ LLC, the employer provided two bonuses to its oil field workers: 1) a “stage” bonus for completing various stages of an oil fracking project and 2) a “performance” bonus, which was memorialized in a written contract with each employee. The “stage” bonus was not in writing or otherwise defined, and that became the central focus of the case on appeal.

In addressing the “stage” bonus, the Court posed the decisive question: “Who has the burden of proof on whether bonuses are discretionary and therefore excluded from the regular rate under § 207(e)(3)? The answer turns on whether § 207(e)(3) is an exemption from the overtime provisions in § 207(a).”

According to the Fifth Circuit panel, it is the employee – not the employer – who bears this burden.

The Court explained:

Section 207(e) does not exempt employers from compliance with § 207(a); it provides instruction for compliance with § 207(a)(1), where “regular rate” is used without definition. Section 207(e) provides that definition, which is crucial for employers if they are to understand what must be included in the regular rate—in order to comply with § 207(a). It was the Employees’ burden to show that they “performed work for which [they were] not properly compensated.” And to do so, they must show that 4JLJ ought to have included the remuneration in question in the regular rate. Because § 207(e)(3) is merely a definitional element of the regular rate—and therefore merely a definitional element of the Employees’ claim—it was their burden to show that bonuses were not discretionary according to the statute’s terms. (Footnotes omitted.)

The Fifth Circuit panel did not review the case law in other circuits in reaching its conclusion. Other courts do not appear to have placed the burden so squarely on the employee.

While it may not reach the same conclusion as other courts, the Fifth Circuit’s interpretation does not lack logic. It is consistent with the notion that an FLSA plaintiff bears the burden of proving his or her case. This would include showing that the bonus or other remuneration at issue is non-discretionary and should have been included in the regular rate for overtime purposes. Here, the plaintiffs established that the “performance” bonus was non-discretionary because it was defined in writing, but the plaintiffs failed to prove that the “stage” bonus was non-discretionary.

The ruling is limited to the Fifth Circuit. There could well be different standards in different Circuits such that the issue may have to be resolved by the U.S. Supreme Court.