A case that was brought by the employer on appeal before the Third Circuit—Secretary of the United States Department of Labor (DOL) v. American Future Systems (February 2017)—sought to determine whether employers had to compensate employees for breaks of twenty minutes or less during which they were logged off their work computers and were not attending to any job-related tasks.
The district court had granted the DOL’s motion for summary judgment and held that, in this case, American Future Systems’ policy of excluding time for breaks less than 20 minutes long violated the Fair Labor Standards Act (FLSA). On appeal, the Third Circuit agreed; they affirmed that the Fair Labor Standards Act requires employers to compensate employees for breaks of 20 minutes or less during which they are free of any work-related duties.
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American Future Systems
The company at the center of this particular decision, American Future Systems, originally had a practice of allowing employees two 15-minute breaks per day. This policy eventually changed, however. The company did away with paid breaks and instead, opted to permit employees to log off of their computers at any time during the day at their discretion. However, employees would not be paid for those times during which they were logged off. The company referred to this as “flextime,” such that essentially enabled employees to take breaks whenever they deemed necessary—unpaid breaks.
Under this model, employees chose their start and end time between 8:30 a.m. and 5:00 p.m. and were able to take breaks at will. The employer only paid employees for any time logged off if that time was less than 90 seconds; this included bathroom breaks.
In the initial suit at the district court level, the Secretary of the Department of Labor argued that American Future Systems’ policy violated the FLSA. The court, in part, granted the Secretary’s motion, specifically as it pertained to the Wage and Hour Division’s (WHD) interpretation of the FLSA under 29 C.F.R. § 785.18, a provision stating that: “Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked.”
The court summarized the relevant facts as follows:
American Future Systems, d/b/a Progressive Business Publications, publishes and distributes business publications and sells them through its sales representatives. Edward Satell is the President, CEO, and owner of the company. Sales representatives are paid an hourly wage and receive bonuses based on the number of sales per hour while they are logged onto the computer at their workstation. They also receive extra compensation if they maintain a certain sales-per-hour level over a given two-week period.
Progressive previously had a policy that gave employees two 15-minute paid breaks per day. In 2009, Progressive changed its policy by eliminating paid breaks but allowing employees to log off of their computers at any time. However, employees are only paid for the time they are logged on. Progressive refers to this as “flexible time” or “flex time” and explains that it “arises out of an employer’s policy that maximizes its employees’ ability to take breaks from work at any time, for any reason, and for any duration.”
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Furthermore, under this policy, every two weeks, sales representatives estimate the total number of hours that they expect to work during the upcoming two-week pay period. They are subject to discipline, including termination, for failing to work the number of hours they commit to. Progressive also sends representatives home for the day if their sales are not high enough and sets fixed work schedules or daily requirements for representatives when that is deemed necessary.
Apart from those requirements, representatives can decide when they will work between the hours of 8:30 a.m. and 5:00 p.m. from Monday to Friday, so long as they do not work more than 40 hours each week. As noted above, during the workday, they can log off of their computers at any time, for any reason and for any length of time and may leave the office when they are logged off. Employees choose their start and end times and can take as many breaks as they please. However, Progressive only pays sales representatives for the time they are logged off of their computers if they are logged off for less than ninety seconds. This includes the time they are logged off to use the bathroom or get coffee. The policy also applies to any break an employee may decide to take after a particularly difficult sales call to get ready for the next call. On average, representatives are each paid for just over five hours per day at the federal minimum wage of $7.25 per hour.
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The defendant-employer raised three primary arguments in their appeal:
- Time spent logged off under its flexible break policy categorically does not constitute work.
- The District Court erred in finding that WHD’s interpretive regulation on breaks less than twenty minutes long is entitled to substantial deference.
- The District Court erred in adopting the bright-line rule embodied in 29 C.F.R. § 785.18 rather than using a fact-specific analysis.
The Third Circuit rejected the label “flex time” as being equivalent to a break policy as understood by requirements outlined within the FLSA.
The court also held that the DOL’s break time regulation, codified in 29 C.F.R. § 785.18 is entitled to Skidmore deference, the highest level of deference given to an administrative regulation.
The court reasoned the regulation was due Skidmore deference because:
The former FLSA specifically empowered the DOL to promulgate such regulations;
The DOL’s interpretation of the break time regulations has been consistent throughout the various opinion letters the DOL has issued to address this issue; and
The DOL’s interpretation is reasonable given the language and purpose of the FLSA.
Having determined that the regulation is entitled to deference, the court held that the regulation must be read to create a bright-line rule and concluded that it does. The court explained that “the restrictions endemic in the limited duration of twenty minutes or less illustrate the wisdom of concluding that the Secretary intended a bright-line rule under the applicable regulations.” As such, the court affirmed the decision below and held that defendant’s break policy which excluded time for breaks less than 20 minutes long violated the FLSA.
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To some degree, the employer in this case did allow for greater flexibility during the course of a workday by enabling its employees to take breaks in accordance with their specific personal needs. However, disqualifying any such “flex time” as a legitimate compensatory period violated the WHD’s interpretation of the FLSA, according to the court. For employers, this served as a warning: not compensating employees in accordance with relevant federal and state laws has consequences. Employees must not abuse the break policy to benefit their own interests. In this case, the defendant had to pay a fairly significant amount in back wages and damages.
If you are unsure about break policies or any aspect of employment law, we would be happy to assist you. Our HR experts have years of experience serving the Kansas City area; our job is to help keep you compliant and informed. Call today to schedule your consultation.