A recent decision from a federal appeals court highlights the perils for employers associated with lax recordkeeping of employee work hours and wage information.
It is well-established that every employer covered by the Fair Labor Standards Act (“FLSA”) is required to keep certain records for each covered non-exempt worker (i.e., those that are paid on an hourly basis and that perform duties other than professional, administrative, executive, outside sales, and certain computer-related positions). Although there is no required form for the records, they must include accurate information about the employee and data about their hours worked and wages earned. There are a variety of acceptable timekeeping methods employers can use to keep track of the hours worked by their employees. For example, they may use a time clock or they may require their workers to record their time on company timesheets. Employers may use any timekeeping method they choose so long as it produces complete and accurate records. Further, if non-exempt or exempt employees do compensable work from home or in the field, they must be compensated for that work and non-exempt employees’ hours must be recorded consistent with FLSA recordkeeping requirements.
On February 9, 2021, the United States Court of Appeals for the Fifth Circuit (which covers Texas, Louisiana, and Mississippi) reaffirmed the importance of complete and accurate recordkeeping, holding that an employer’s spotty wage records were not enough to overcome workers’ testimony of unpaid overtime wages. In Dep’t. of Labor v. Five Star Automatic Fire Protection LLC, the U.S. Department of Labor (“DOL”) sued Five Star Automatic Fire Protection LLC, a fire-sprinkler installation and service company based in El Paso, Texas, alleging that crews who typically worked for clients offsite were not being compensated for work they performed prior to and after their shifts.
Five Star paid its construction employees by the hour, and required them to record their own time by handwriting how many hours they worked each day on timesheets. However, employees were told to only include the total number of hours worked at a jobsite, and when employees worked at two or more locations in one day, they did not record their start or end time for each location and they did not indicate the order in which they worked at those locations. In September 2015, the DOL initiated an inquiry into Five Star’s compensation practices, and ultimately, the DOL filed a complaint against Five Star in federal court, alleging overtime and recordkeeping violations of the FLSA and seeking back wages and liquidated damages for the affected employees.
At trial, the DOL called six former employees to testify about the violations. Although their testimony was lacked many details, the district court determined that Five Star failed to keep accurate records. Specifically, the court found that Five Star required employees to arrive at the shop 15 minutes prior to their shift start time but did not compensate its employees for the 15-minute gap between arrival and shift start time. In addition, Five Star did not compensate employees for the required travel time back from the worksite to the shop at the end of the day. Finally, the court found additionally violations based on errors plainly revealed by the payroll records themselves. Accordingly, the district court held that Five Star was liable to 53 employees for $121,687.37 in back wages, an equal amount in liquidated damages, and $2,604.35 for face-of-the-record violations. Five Star appealed the court’s findings as to liability for the 47 non-testifying employees and the back-wages calculation for all 53 employees.
The U.S. Court of Appeals for the Fifth Circuit upheld the judgment and the award, agreeing with the district court’s application of the US Supreme Court’s burden-shifting framework outlined in Anderson v. Mt. Clemens Pottery Company. In Mt. Clemens, the Supreme Court created a methodology for evaluating federal wage claims where an employer fails to maintain proper records. Under this framework, if “the employer’s records are inaccurate or inadequate,” a plaintiff need only show by “just and reasonable inference” that he or she was an employee, worked the hours, and wasn’t paid. The Fifth Circuit explained that this concept is “rooted in the view that an employer shouldn’t benefit from its failure to keep required payroll records, thereby making the best evidence of damages unavailable.”
Ultimately, the Fifth Circuit held that Five Star’s “bare-bones timesheets” left “numerous evidentiary gaps,” and the DOL was able to fill those gaps with consistent testimony that Five Star encouraged employees not to record some of the time they worked pre- and post-shift. The DOL used this testimony to estimate unpaid hours and calculate back wages, and Five Star’s only rebuttal evidence was a summary chart based on the company president’s memory, which the court determined failed to negate any raised inferences of unpaid work. The Fifth Circuit also rejected Five Star’s argument that it was improper to award liquidated damages, reasoning that “[e]ven if [Five Star] acted in good faith based upon a reasonable belief that it did not violate the FLSA, the district court still had discretion to award liquidated damages.”
The Fifth Circuit’s ruling in this case demonstrates that courts may accept an approximation of damages by employees when an employer’s FLSA-required time records are incomplete, and when determining the appropriate amount, they are more likely to rely on the consistent testimony of multiple workers rather than reactive testimony from a company representative. Such after-the-fact testimony will often be insufficient to fill in the gaps left by shoddy recordkeeping. Further, employers may not be able to escape an award of liquidated damages, so the consequences of violations may prove to be expensive.
Overall, this recent Fifth Circuit holding serves as a timely reminder for employers about the importance of complete and precise recordkeeping. Now more than ever, due to the disruption of the traditional workplace precipitated by the COVID-19 pandemic, it is imperative that employers take measures to ensure non-exempt telecommuting employees, as well as field employees, are properly recording their hours worked, and employers should make every effort to maintain legible, current, and easily accessible payroll records. Although at times there may be logistical challenges that make it difficult to maintain accurate and thorough wage records, employers need to exercise reasonable diligence to ensure that required recordkeeping does not fall through the cracks.