April 2012

By: Nancy E. Joerg, Esq.

This is one of those rare court decisions where the employer wins under the Fair Labor Standards Act (FLSA) even though the employee actually did work and the employer did not pay the employee for that work. It is a fascinating case which has caused a lot of “buzz” in the legal world.

The Seventh Circuit Court of Appeals ruled in December 2011 [in Kellar v. Summit Seating Inc., No. 11-1221], that an employer was not liable for overtime compensation to an employee. Yes, the employee was actually working overtime, but the employer did not have “reason to know” that the employee was doing this work.

The Seventh Circuit Court of Appeals ruled that the employer, Summit Seating (Summit), had little reason to know or even suspect that the Plaintiff, Susan Kellar, was acting in direct contradiction of a company policy that the Plaintiff herself was partially responsible for enforcing.

BACKGROUND ON PLAINTIFF’S PRE-SHIFT ACTIVITIES: Susan Kellar (Kellar) worked for Summit as a sewing manager. As a sewing manager, Kellar was responsible for: 1) seeing that work was completed on schedule and 2) training junior Summit employees. (Kellar herself was paid hourly even though she managed between 7 and 8 employees.)

Kellar’s shift started at 5:00 am, but she would arrive sometimes 45 minutes early in order to unlock doors, turn on lights, make coffee, review schedules, distribute materials and prepare the work area so that the sewers under her could begin working at the start of the 5:00 am shift. However, company policy, as outlined in Summit’s employee handbook, required employees to request pre-approval to work more than 40 hours a week.

As sewing manager, Kellar was fully aware of this Summit policy, but she never told her supervisors at that she was working before the start of her shift. During her employment, she never reported any errors on her paychecks and never requested any overtime pay. She met weekly with the owners of Summit and never mentioned to them that she needed to have her schedule adjusted in any way to account for her pre-shift work.

After more than 4 years as sewing manager at Summit, Kellar quit and then filed a lawsuit against Summit under the Fair Labor Standards Act.

In the Kellar v. Summit case, Kellar’s supervisors (who were the owners of the company) typically did not get into work until 7:00 am or 8:00 am and therefore never personally observed Kellar working prior to her 5:00 am shift start. It was only after Kellar quit that she alleged for the very first time that she had engaged in off the clock work while employed.

DISTRICT COURT FOUND THAT PLAINTIFF’S PRE-SHIFT ACTIVITIES WERE DE MINIMIS: The District Court granted summary judgment in favor of Summit Seating finding that Kellar’s pre-shift activities were “preliminary” and that any work she performed before her shift was de minimis (and that Summit did not know that Kellar was engaging in pre-shift work).

SEVENTH CIRCUIT’S REASONING: Kellar appealed to the Seventh Circuit Court of Appeals. The Seventh Circuit Court of Appeals disagreed with the District Court’s finding that Kellar’s work was preliminary and de minimis. However, the Seventh Circuit Court of Appeals affirmed the District Court’s decision because the Seventh Circuit Court of Appeals reasoned that Summit did not know (or have reason to know) that Kellar was working before her shift.

Keep in mind that, under this reasoning, if Summit knew of Kellar’s pre-shift work (or had reason to know of it), then Summit would be liable for compensating Kellar for the pre-shift work and for any overtime involved with it.

Typically, an employer must pay for work even where the employer has not requested the overtime be performed or does not desire the employee to work, or where the employee fails to report his overtime hours. But under the Seventh Circuit Court of Appeals’ reasoning, the employer does not have to pay for work about which it did not know and had no reason to know.

LESSONS TO BE LEARNED: An important lesson to be learned here is that if an employer is appearing before the Seventh Circuit Court of Appeals on an overtime claim under FLSA, the Court’s position is that the employee seeking overtime must prove that the employer knew or should have known of the overtime work in order to succeed.

Another lesson to be learned is that it is very wise for a company policy to contain the wording that employees must request pre-approval to work more than 40 hours per week.

Warning: The Kellar v. Summit case is unusual and unique on its facts. Employers should never assume they will be successful in not paying employees for their off the clock work. Employers are often deemed to have “constructive knowledge” of work allegedly performed by an employee off the clock. Employers will therefore be deemed to have permitted that work (rendering such off the clock work as compensable time).

Employers should have a well-drafted written policy on when overtime work is permitted. Employers should discipline employees who violate that policy (while still paying them for any work performed in compliance with applicable wage laws). Employers will generally have a hard time showing that they did not know such work was being performed.

Questions? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.