Employers Cannot Escape Overtime Liability By Telling Employees To Underreport Their Hours

To us as Des Moines employment lawyers, this might seem like a no-brainer, unless you're an employer trying to dodge overtime liability, but employers can't avoid overtime liability simply by telling employees to underreport their hours worked and then rely on employees' compliance with that directive to defeat an overtime lawsuit. But, amazingly, an employer made exactly that argument in the recent case of Bailey v. Titlemax of Georgia, Inc. At the direction of his supervisor, who told him that TitleMax did not pay overtime, the employee regularly worked off the clock. The same supervisor also edited the employee's time records to report fewer hours than he worked. The employee later sued for the unpaid overtime.

During the lawsuit the employer argued that the employee was to blame for any overtime pay deficiencies. The employer maintained that the employee could have complained about his supervisor. Nor, according to the employer, did the employee follow the employer's policies regarding accurate recording of working time. The court framed the question as "if an employer knew its employee underreported his hours, can it still assert equitable defenses based on the employee's own conduct in underreporting as a total bar to the employee's FLSA claim?" 

The court said, no, when an employer knows or has reason to know that its employee is underreporting hours worked, the employer cannot use the employee's underreporting as a defense to the employee's overtime claim.  The court noted that to rule otherwise would allow an employer to wield its superior bargaining power to pressure or even compel its employees to underreport their work hours. That would neutralize the FLSA's purpose of leveling the playing field between employers and employees. It would also undermine federal overtime law's deterrent purpose.

We've seen variations of this argument before as Des Moines overtime lawyers. An employer will have a written policy requiring accurate recording of all hours worked. The employer will also have an unwritten policy, verbally disseminated and enforced by mid-level management, that overtime is not allowed and any hours over forty should either not be recorded or should be edited from employees' working time submissions. Upon presentation of the overtime lawsuit, the employer will point to its written policy requiring accurate recording of all hours worked and will disavow and/or deny any verbal contradictions of that policy by middle management, claiming that the employee's recorded hours are presumed accurate and demonstrate that the employee didn't work any overtime. That argument usually fails.   

The decision in Bailey (and what we've seen in our own cases) is not surprising. It was based on standard overtime law rules. An employer's policy requiring accurate reporting of working hours does not necessarily immunize the employer from overtime liability if the employer, through its management personnel, encouraged employees to violate that policy and not record all hours worked. A supervisors' knowledge that an employee is not reporting all hours work is automatically presumed to be the employer's knowledge of that fact. That is all that is required for overtime liability. An employer cannot avoid that liability by pointing to an employee's underreporting of hours worked when that underreporting occurred at the employer's insistence.      

This is not to say that there are no possible situations in which employees underreport their hours and kill their overtime claim as a result. If an employee underreports hours worked, but not at the employer's direction and without the employer's knowledge, that employee could very well later be barred from seeking overtime compensation. That's simply an outgrowth of the basic law that it has to be proved that an employer knew or should have known about the overtime hours before the employer is liable for paying overtime.

Harley Erbe