Sixth Circuit Adopts Reasonable Diligence Test for Determining Employer's Constructive Knowledge of Employee's Overtime

Practical Law Legal Update w-002-4873 (Approx. 6 pages)

Sixth Circuit Adopts Reasonable Diligence Test for Determining Employer's Constructive Knowledge of Employee's Overtime

by Practical Law Labor & Employment

Background

Donna Craig worked as a bookkeeper for Bridges Bros. Trucking (Bridges). During a nearly two-year period, Craig worked over 40 hours in numerous workweeks, as reflected in detailed time sheets she filled out. Bridges did not pay overtime to Craig for all but one of those workweeks. Craig claimed that Bridges indicated to her that only certain employees, not including her, were eligible for overtime. Bridges claimed that:

Craig should have known that she was eligible for overtime.
It was unaware that Craig was working overtime.

After Bridges terminated her employment, Craig filed an overtime lawsuit under the FLSA (and Ohio wage and hour laws). The district court granted summary judgment to Bridges and denied Craig's cross-motion for summary judgment, holding that Craig:

Miscalculated her overtime pay rate and prevented Bridges from complying with the FLSA.
Waived her right to overtime pay by not immediately claiming it during her employment.

Craig appealed.

Outcome

The Sixth Circuit:

Reversed the district court's grant of summary judgment to Bridges.
Affirmed the district court's denial of Craig’s cross-motion for summary judgment.
Held that:
- an employer has constructive knowledge of its employee's overtime hours if it should have discovered the overtime by exercising reasonable diligence; and
- an employee cannot voluntarily waive her right to overtime pay by miscalculating it.
Found that a jury could conclude that Bridges was aware that Craig was working overtime.
Remanded to the district court to determine whether Bridges had constructive knowledge of Craig's overtime hours.

The Sixth Circuit noted that:

FLSA regulations provide that if an "employer knows or has reason to believe" that an employee is working over forty hours in a week, the employer must pay overtime to the employee, even if the employer:
- did not request that the employee work overtime; or
- prohibited the employee from working overtime.
(29 C.F.R. § 785.11).)
Courts have held that employers do not avoid overtime liability if they have actual or constructive knowledge that an employee worked overtime (see Reich v. Stewart, 121 F.3d 400, 407 (8th Cir. 1997)).
The Sixth Circuit has adopted the "reasonable diligence" test for determining whether an employer had constructive knowledge of its noncompliance with a certain legal requirement. The test focuses on whether the employer could have discovered its noncompliance by exercising reasonable diligence (Carlisle Equip. Co. v. U.S. Sec'y of Labor & Occupational Safety, 24 F.3d 790, 793 (6th Cir. 1994).
Other circuits have adopted the reasonable diligence test for FLSA claims, holding that an employer has constructive knowledge of an employee's overtime hours if it would have become aware of the employee's overtime hours by exercising reasonable diligence (Von Friewalde v. Boeing Aerospace Operations, Inc., 339 F. App'x 448, 455 (5th Cir. 2009); Hertz v. Woodbury Cty., 566 F.3d 775, 781 (8th Cir. 2009); Allen v. Bd. of Pub. Educ. for Bibb Cty., 495 F.3d 1306, 1321 (11th Cir. 2007)).
Employers do not violate the FLSA when:
- they have no knowledge that an employee is working overtime; and
- the employee fails to notify the employer or deliberately prevents the employer from finding out about the employee's overtime hours.
(White v. Baptist Memorial Health Care Corp., 699 F.3d 869, 872 (6th Cir. 2012).)

The Sixth Circuit further held that:

The district court erred when it found that Bridges could not have had constructive knowledge of Craig's overtime because Craig:
- miscalculated and misreported her time; and
- knew of Bridges' overtime procedure, but failed to use it.
Craig did not miscalculate or misreport her overtime. She actually kept "meticulous" records of her overtime hours and submitted those records to Bridges each week.
Craig may have miscalculated her pay rate, but did not miscalculate her work time.
It is unclear whether Craig knew she was:
- eligible for overtime pay; and
- permitted to request overtime pay from her employer.
A jury must determine whether:
- Bridges established a reasonable process for employees to report uncompensated worktime; and
- Craig intentionally failed to utilize that process.

Practical Implications

With its decision in Craig, the Sixth Circuit joins other circuits in holding that an employer may have constructive knowledge of an employee's overtime hours if the employer should have discovered the overtime by exercising reasonable diligence. The case also presents the relatively rare situation in which the employee seeking overtime was the employee responsible for payroll. The Sixth Circuit rejects the notion that this type of an employee could voluntarily waive her overtime claim by not immediately claiming it or by miscalculating it.

Employers within the Sixth Circuit and the other circuits that have adopted the reasonable diligence test should:

Implement clear and detailed procedures for employees to report their worktime.
Conduct detailed evaluations of all of their employees' job duties to determine whether or not they are eligible for overtime pay under the FLSA.
Not rely on employees like bookkeepers to make assessments or determinations about which employees are eligible for overtime.

Sixth Circuit Adopts Reasonable Diligence Test for Determining Employer's Constructive Knowledge of Employee's Overtime | Practical Law