Do Employers Need to Pay Overtime to Employees Under the FLSA for Incidental Activities When the Employees Do Not Comply with the Employer's Timekeeping Requirements?
December 18, 2023
By: Stephen B. Stern
In Meadows v. NCR Corp., 83 F.4th 649 (7th Cir. 2023), the United States Court of Appeals for the Seventh Circuit was asked to determine whether the Fair Labor Standards Act (“FLSA”) requires employers to pay overtime to employees for the performance of incidental activities that the employer has chosen to compensate through custom or practice if the employees fail to comply with the requirements imposed by the employer for such incidental activities to be compensated. The Seventh Circuit held that employers are not required to pay overtime when employees do not comply with the employer’s requirements.
In Meadows, Michael Meadows worked as a Customer Engineer (“CE”) for NCR Corporation (“NCR”), which manufactures, sells, and supports point-of-sale systems and ATMs. CEs service NCR devices in the field, meaning they mostly work remotely and with minimal on-site supervision. NCR established policies regarding CE pay. Those policies prohibited off-the-clock work and required CEs to work only during their official shifts and record the time they worked in an electronic timekeeping system. If a CE worked overtime contrary to NCR’s guidelines, the CE would still be paid overtime, provided that the overtime work was recorded in the electronic timekeeping system.
Meadows sued NCR in federal court in Illinois under the FLSA and Illinois overtime law seeking overtime compensation for work he claims he worked but did not record in the electronic timekeeping system. NCR moved for summary judgment, arguing that the activities for which Meadows sought compensation were performed outside of his typical shift and were not integral and indispensable to his job duties, meaning they were not his principal activities that were entitled to compensation under the FLSA. NCR also argued that even if the non-integral (i.e., incidental) duties were compensable, NCR was not liable for those hours of work because it did not know Meadows was performing those activities. The district court denied NCR’s motion. In reaching its decision, the district court noted that, although the FLSA requires employers to pay employees for the performance of all principal activities (i.e., those that are “integral and indispensable”) and Meadows’ off-the-clock activities were incidental, an employer can elect to pay employees for incidental duties by contract, custom, or practice, and such pay would be due if the employer had constructive notice of the work performed. The district court ultimately found that there were disputes of material fact as to whether NCR had a custom or practice to pay employees for incidental activities and whether the company had constructive notice of Meadows’ off-the-clock work. At trial, the jury ultimately found for Meadows and NCR appealed.
The Seventh Circuit started its analysis by noting that the district court correctly identified the FLSA requires an employer to pay an employee overtime for the performance of all principal activities and it does not require an employer to pay an employee for the performance of incidental activities unless the employer has agreed to pay for such incidental activities by contract, custom, or practice. The Seventh Circuit also noted the district court found that NCR had a custom or practice of compensating employees for off-the-clock activities and NCR would have to pay Meadows if it knew or should have known about Meadows’ performance of those incidental activities that were performed off-the-clock. The Seventh Circuit, however, found the district court erred by analyzing NCR’s custom or practice too narrowly by focusing on NCR’s custom/practice of compensating employees for the types of incidental activities that Meadows performed, but not the circumstances in which those activities would be compensated, and those circumstances required employees to record their time in the electronic timekeeping system in order to deem the incidental activities compensable. By failing to distinguish recorded from unrecorded activities, the Seventh Circuit found the district court awarded Meadows overtime compensation that he was never entitled to receive in the first place. In other words, because Meadows did not comply with NCR’s requirement to record all his off-the-clock activities, including the incidental activities, Meadows did not comply with NCR’s custom or practice to be compensated for such off-the-clock incidental activities according to the Seventh Circuit. As such, the district court should not have even reached the issue of whether NCR had knowledge of Meadows’ performance of the off-the-clock incidental activities. In this regard, the Seventh Circuit held that “an employer’s knowledge of an employee’s incidental activity is immaterial when it has no obligation to pay for that activity in the first instance because the employer’s custom or practice of payment only demands compensating employees who have satisfied the custom or practice’s requirements – which are inextricable from the custom or practice itself.” As a result, the Seventh Circuit vacated the decision of the district court and remanded the case to the district court (because NCR did not ask the appellate court to reverse the decision of the district court) to determine whether a new trial was appropriate.
The Seventh Circuit’s decision in Meadows is significant because it allows employers to set strict conditions under which overtime compensation will be paid for the performance of incidental activities. One of those conditions can be the requirement to strictly record the hours worked performing such incidental activities. Although the Seventh Circuit effectively endorsed the recording of all hours worked on incidental activities as being a legitimate requirement as a condition to receiving compensation for the performance of such activities, such a condition also has the potential for mischief and abuse, as there are numerous cases where employees claim that employers required employees to perform off-the-clock work and instructed employees not to record such time. If that were to be the case, a court may still find employers liable for such overtime activities, notwithstanding the failure to comply with the requirement to record all time where incidental activities were performed. Any policies, practices, and procedures concerning the payment of overtime should be evaluated in consultation with legal counsel.