Feb. 1, 2012 – Under federal and state law, employers have a duty to maintain a record of their employees’ hours worked. A recent federal case illustrates why keeping proper records is important, and why lawyers should counsel employers to be diligent in stopping apparent overtime work that is not authorized.

Wisconsin employers are, at times, surprised to learn that they are required to maintain a daily time record for non-exempt and exempt employees. Wisconsin Administrative Code § DWD 272.11(1) requires that employers make and keep the following payroll records for at least three years for each of their employees:

(a) Name and address;

(b) Date of birth;

(c) Date of entering and leaving employment;

(d) Time of beginning and ending of work each day;

(e) Time of beginning and ending of meal periods if employees’ meal periods are required or such meal periods are to be deducted from work time (this requirement shall not apply when work is of such a nature that production or business activity ceases on a regularly scheduled basis);

(f) Total number of hours per day and per week;

(g) Rate of pay and wages paid each payroll period;

(h) The amount of and reason for each deduction from the wages earned; and

(i) Output of employee, if paid on other than a time basis.

The rule doesn’t require that the record of hours worked be maintained in any particular form. It can be on a time card, time sheet, computer, etc.

However, the rule requires that employers maintain the required records (or a duplicate) in a safe and accessible location at the place of employment, the business at which the employee is employed, or at one or more established central record-keeping offices in the state.

When an employer fails to maintain the required time records, there is a risk that an enforcement agency such as the U.S. Department of Labor, Wage and Hour Division or the Wisconsin Department of Workforce Development, Equal Rights Division, Labor Standards Bureau, or a court, will find the evidence of an aggrieved employee concerning the nature and extent of alleged hours worked more credible than any other evidence offered by the employer.

This is especially true when an employer misclassifies a non-exempt employee as exempt. Many employers are reluctant to maintain time records for exempt employees for fear that it will be used to show that they are treating such employees as non-exempt. Wisconsin employers need not be so concerned in that regard given the above recordkeeping requirement applicable to non-exempt and exempt employees.

In wage and hour litigation, employees frequently produce secret overtime logs contained within a day planner or some other concealed source allegedly maintained by the employee. The absence of required payroll records can cause problems in the employer’s defense.

Thus, there is no better time than the present for employers to begin complying with the recordkeeping requirements if they have not previously done so. Employers should also remain diligent in policing unauthorized overtime by policing overtime policies and disciplining employees who violate such policies.

This point is highlighted in a recent decision by the U.S. Court of Appeals for the Seventh Circuit, Kellar v. Summit Seating Inc., 11-1221 (Dec. 14, 2011).

The facts

In Summit, the federal appeals court ruled that federal wage and hour law stops short of requiring the employer to pay for work for which it had no actual or constructive knowledge, while noting that employers cannot sit back and accept the benefits of unauthorized overtime without compensating for them.

Summit Seating is a small employer that manufactures seating for buses, trucks, and vans. In 2001, Susan Kellar began working for Summit as a cutter’s helper.

In 2004, she was promoted to sewing manager. In that capacity, she was responsible for supplying employees with their sewing products, tracking supplies, ensuring that work was completed on schedule, and training junior employees. Kellar managed between seven and eight employees and was paid on an hourly basis.

Kellar claimed that she regularly arrived at work 15 and 45 minutes early before the start of her 5 a.m. shift. When she arrived at or before the same time as her sister, who also worked at Summit, she spent about five minutes unlocking doors, turning on lights, turning on the compressor, and punching in on the time clock.

She then spent about five additional minutes preparing coffee for other employees. Depending upon her workload, she spent five to ten additional minutes or longer reviewing schedules and gathering and distributing fabric and materials to her subordinates’ work stations so that they could go straight to work when they arrived.

She spent another five minutes drinking coffee and smoking. Any remaining time was spent performing prototype work, cleaning the work area, or checking patterns.

Kellar claimed that no one told her she needed to come in before her shift. She arrived early because she felt it would have been a hassle to show up just in time and still get her subordinates up and running. Kellar’s time cards reflect that she often punched in early. When she forgot to clock in, she would write on her time card the official starting time of her shift.

Interestingly, Kellar’s sister signed an affidavit stating that Kellar didn’t work before the start of her shift. Rather, she claimed that Kellar chatted and drank coffee until the start of her shift. If Kellar arrived early to work, the employer’s owners (and Kellar’s supervisors) never personally observed it. They typically arrived between 7-8 a.m.

Kellar was aware that Summit’s employee handbook contained a policy requiring pre-approval for working overtime. She admitted that she was comfortable going to the owners with any problems. She also admitted that she never told the owners she was working before the start of her shift, never reported errors with her paychecks, never requested overtime pay, and never suggested that her schedule needed to be adjusted to account for her pre-shift work.

Pre- and post-shift activities not de minimis

In February 2009, Kellar voluntarily resigned and sued Summit for overtime compensation under the federal Fair Labor Standards Act (FLSA).

The district court dismissed Kellar’s complaint because it found that her pre-shift activities were “preliminary,” that any work she performed was “de minimis,” and that Summit did not know Kellar was engaging in pre-shift work.

The court of appeals disagreed with the district court’s conclusions regarding the preliminary and de minimis nature of Kellar’s pre-shift work. However, it agreed that Summit did not know, or have reason to know, Kellar was working before her shift.

The FLSA generally requires covered employers to pay overtime to non-exempt employees who work more than 40 hours in a workweek.

The employee bears the burden of proving that she performed overtime work for which she was not properly compensated. The employer bears the burden of establishing that an exemption from the FLSA applies.

The district court found that Kellar’s pre-shift activities were non-compensable “preliminary” activities. The Portal-to-Portal Act of 1947 amended the FLSA to eliminate employer liability “on account of . . . activities which are preliminary or postliminary to [principal activities,] which occur either prior to the time on any particular workday at which such employee commences, or subsequent to the time on any particular workday at which he ceases, such principal [activities].”

But the court of appeals rejected the district court’s finding because Summit did not raise the argument. Thus, Kellar was not on notice of such defense.

The court of appeals also rejected the district court’s finding that the pre-shift work was de minimis. The de minimis doctrine allows employers to disregard otherwise compensable work when only a few seconds or minutes of work beyond the scheduled working hours are in dispute.

The employer bears the burden of showing that the doctrine applies to any particular case. The court of appeals concluded that the amount of pre-shift work, both per day and in the aggregate, was substantial.

Employer did not have notice

On the other hand, the court of appeals concluded that Summit neither knew, nor should have known, that Kellar was working overtime.

To state a claim under the FLSA, an employee must show that the employer had actual or constructive knowledge of the overtime work. The court of appeals noted that Kellar’s practice of clocking in early would not necessarily have alerted Summit that she was performing pre-shift work.

Employees who clock in early do not have to be paid so long as they are not working. Kellar conceded that most Summit employees were in the habit of punching in early and then socializing until their work shifts began. The owners had no reason to believe that Kellar was arriving early in order to work.

In this case, the employer was fortunate that the employee was unable to produce sufficient evidence that the employer was aware of her pre-shift work.

In many cases, an employee will allege that the employer had actual or constructive knowledge based upon the employer’s observation or interaction with the employee during the pre-shift work. In such circumstances, the outcome can be very different.

Conclusion

Employers in Wisconsin must comply with the reporting requirements under Wisconsin Administrative Code § DWD 272.11(1), and be diligent in policing overtime policies. Lawyers who counsel employers should note that the holding in Kellar is limited to those situations where the employer had no actual or constructive notice of alleged overtime. 

About the author

Troy D. Thompson is a partner with Axley Brynelson, LLP, Madison, and chairs the firm’s Labor and Employment Practice Group. Contact Troy at (608) 283-6746.