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WAGE-HOUR CASE ADDRESSES AUTOMATIC MEAL DEDUCTION PAYROLL SYSTEM

A recent federal appeals case addresses company policies that provide for employees receiving an unpaid meal break that is automatically deducted from their paychecks.  Dwight v. Baptist Memorial Healthcare Corp., 19 WH Cas. 2d 1441 (CA 6 2012). The employee handbook contained these policies as well as policies providing that if an employee’s meal break was missed or interrupted because of a work-related reason, the employee would be compensated for the time worked during the meal break. The employees were instructed to record all time spent performing work during meal breaks in an “exception log” whether the meal break was partially or entirely interrupted.  The plaintiff, an employee, signed a document that stated she understood the meal break policy and, therefore, understood that if you work during a meal break, you had to record that time in an exception log in order to be compensated for the time.

The plaintiff followed this policy on at least one occasion when she reported missing a meal break, and she was compensated for her time. From time to time, however, she told her supervisor that she was not getting a meal break, but on these occasions she never specifically told her supervisors that she was not compensated for missing her meal breaks. Eventually, the plaintiff stopped reporting her missed meal breaks in the exception log. In addition to the exception log, the plaintiff knew the employer’s procedure for reporting payroll errors. Plaintiff admitted that when she used this procedure the errors were handled immediately. However, she did not utilize these procedures to correct the interrupted meal break errors that she failed to report because she felt it would be “an uphill battle.” The plaintiff ultimately sued contending that she was due overtime for the missed meal breaks.

While there are few cases dealing with missed meal breaks under the wage-hour laws as compared to the case law for unpaid overtime, the Sixth Circuit Court of Appeals analogized the two situations. The court cited other cases indicating that where an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer’s failure to pay for the overtime hours is not a violation of the wage-hour laws. Further, the standard for constructive knowledge of overtime work is whether the employer should have known, not whether it could have known, and it is not required that an employer go through records to determine whether or not its employees were working beyond their scheduled hours. Further, where the employer has specific procedures for employees to follow in order to be paid overtime, and the employees ignore these procedures, it is much less likely that constructive knowledge on the part of the employer of the overtime work will be found.

The appeals court upholds the district court’s summary judgment ruling in favor of the employer. In the ruling, the majority opinion states that if an employer establishes a reasonable process for an employee to report uncompensated work time, the employer is not liable for non-payment if the employee fails to follow the established process. The court cites the fact that no evidence appeared that the employer discouraged employees from reporting time worked during meal breaks or that the employer was otherwise notified that its employees were failing to report time worked during meal breaks. The dissenting judge feels the majority opinion is too broad, citing the principle that an employer must pay its employees for any time the employer knows or should have known the employee is working, even if the employee fails to report the work.

Editor’s Note - The case fully supports the use of an automatic meal deduction system, and points out the value of having some type of reporting system to report changes from regularly scheduled hours and/or a review of payroll hour errors. The dissenting opinion deviates from the majority by stating that an employee’s failure to report remains just one piece of circumstantial evidence suggesting a lack of constructive knowledge, and that an employer who sees its employees working late or who pressures employees not to report hours may not be as credible in relying on the employee’s reporting failures. The dissent also cites favorably the use of systems whereby employees are presented with a copy of the work hours for each pay period and asked to review the entries and sign to attest to the record’s accuracy.


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