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Daytraders CPA: Jury awards more than $22 million in back pay to manufacturing employees

The U.S. Department of Labor (DOL) recently announced that a jury in a landmark case, Walsh v. East Penn Manufacturing Co, Inc., DC-PA, has awarded more than $22 million in back wages to about 7,500 employees of a battery manufacturer. The award marks the largest recorded verdict ever under the Fair Labor Standards Act (FLSA). Further, the DOL, which brought the lawsuit, plans to request an equal amount in liquidated damages and an injunction requiring future FLSA compliance by the manufacturer.

The jury found that the manufacturer was required to pay affected workers for all of their working time — including the actual additional time needed to put on and remove protective equipment and to shower to avoid the dangers of lead exposure and other hazards — resulting in overtime violations. This case should act as a wakeup call for all manufacturers to pay close attention to FLSA rules and regulations concerning tracking time and pay.

FLSA pay regs explained

Under the FLSA, employees must be paid an overtime rate of one and a half times their regular pay rate for time worked above 40 hours a week, unless specific exemptions exist. FLSA exemptions exclude certain executives, administrative and professional (EAP) employees; outside salespeople; and computer employees from the federal overtime rules.

What constitutes hours worked under the FLSA? “Workday,” in general, means the period between the time on any particular day when employees commence their “principal activities” and the time at which they cease such activities. Principal activities are those that employees are employed to perform, such as the work manufacturing employees perform during their shift on the manufacturing floor — and those hours must be compensated.

But employees must also be compensated for all activities that are essential to performing their principal activities, even if the activities are performed before employees begin, or after they end, their principal work activities. The workday may, therefore, be longer than employees’ scheduled shift, hours, tour of duty, or production line time.

For example, if employees in a chemical plant cannot perform their principal activities without putting on certain clothes, then changing clothes on the employer’s premises at the beginning and end of the workday would be essential to performing their principal activities. The time spent changing clothes would be part of the workday and must be compensated.

Facts of the case

The manufacturer, one of the largest battery producers in the world, maintained two sets of time records for its employees. The first was based on a card-scanning system requiring employees to swipe in no more than 14 minutes before a shift and no more than 14 minutes after a shift. The other set of “adjusted” records didn’t reflect the 14-minute rule before and after shifts.

The manufacturer paid its employees based on the adjusted time records, without taking the 14-minute rule into account, even though it was aware that more time was needed for pre- and post-shift activities. In response to an employee’s complaint, the employer adjusted its policy, providing a five-minute grace period before a shift to change into uniforms and additional time for cleaning up after a shift when approved by a manager. Also, the employer granted employees 10 minutes for shower time after their shifts.

The parties didn’t dispute that the activities before and after employees’ 8-hour shifts were “integral and indispensable.” However, they disagreed about the measuring stick used for this compensable time.

The key difference between the parties: The DOL argued that the employer should record the actual time it takes for workers to put on and take off their protective uniforms. Conversely, the employer asserted that it’s required to pay employees only for the “reasonable time” to complete those tasks and that the 15 minutes for pre-shift activity and 10 minutes for post-shift activity is sufficient.

In the end, the manufacturer couldn’t persuade the court. The court confirmed that the appropriate method for measuring compensable time is based on the continuous workday rule, whereby employees are compensated for all time spent during the continuous workday. The court saw no binding legal precedence for using a “reasonable” amount of time.

Moreover, the court indicated that the “reasonable” time standard was used only for calculating back-pay damages and not for regular pay. So, it agreed with the DOL’s position that compensation should be based on the actual time spent on the activities — not a “reasonable” amount of time.

Besides siding with the employees on overtime pay, the court found that the manufacturer violated FLSA recordkeeping provisions. Reason: The manufacturer openly admitted it didn’t record the actual time spent on pre- and post-shift activities.

Learn from others’ mistakes

This case is a cautionary tale for manufacturing companies in similar circumstances. Be sure to accurately track work hours of employees according to the FLSA and other prevailing laws and regulations — and to pay them for the tracked time.

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