Overtime: Policy Forbidding Unauthorized Overtime Doesn’t Excuse Employer from Paying for Extra Hours; Sample Language You Can Use

Gotham Registry, Inc., a New
York nurse staffing agency, assigns nurses to
temporary jobs at client hospitals. Nurses must complete daily time sheets,
which each hospital compiles, reviews, and forwards to Gotham
weekly. Gotham doesn’t have access to hospital
premises to verify a nurse’s hours. The hospital pays Gotham a straight hourly
fee multiplied by the number of hours a nurse works, and Gotham
pays the nurse. This regular hourly fee doesn’t contain a premium for overtime
hours. However, because the nurses are Gotham’s employees, Gotham
must still pay  them time and a half for
overtime hours worked.

In response to rising overtime costs that hospital fees didn’t
cover, Gotham implemented a policy designed to
bar unauthorized overtime, which states:

 “You must notify Gotham in
advance and receive authorization from Gotham
for any shift or partial shift that will bring your total hours to more than 40
hours in any given week. If you fail to do so you will not be paid overtime
rates for those hours.”

This policy is printed on all time sheets.

No Authorization Equals No Overtime Pay

In accordance with the policy, some nurses contacted Gotham for authorization before working overtime that the
hospital requested. If Gotham approved the assignment,
it paid an overtime premium. On other occasions, however, nurses accepted extra
hours at the hospital without Gotham’s
approval. Gotham only paid an overtime premium
for these hours when the hospital, on rare occasions, agreed to pay an enhanced
fee to cover the premium. Otherwise, Gotham
paid a nurse only at his or her straight-time rate, with no overtime premium.

The court pointed out that Gotham could have taken other, more effective steps to reduce its overtime liability, such as disciplining nurses who violated the policy or contracting with the hospital to pay an enhanced fee for overtime hours

DOL Seeks Back Overtime

On the nurses’ behalf, the U.S. Department of Labor (DOL) sued Gotham for back overtime pay, contending that the company’s
refusal to pay an overtime premium for unauthorized hours violated the federal
Fair Labor Standards Act (FLSA). Gotham argued
that it wasn’t liable for overtime work because it didn’t want nurses to work
the overtime and had prohibited unauthorized overtime. Gotham
pointed out that under the FLSA, an employer must pay only for hours it “suffers
or permits” an employee to work.

Employer’s Knowledge Is Key

A federal appeals court in New York took the DOL’s side.1 The FLSA requires an employer
to pay for all time that it suffers or permits an employee to work, which means
that the employer must know the employee is working—and such knowledge may be
actual or imputed.

Here, said the court, Gotham
received information that nurses regularly worked overtime when it obtained time
sheets each week. That it received the information after the overtime was worked
didn’t undermine the fact that Gotham did have
knowledge, as an employer doesn’t have to learn about the overtime while it is being
performed. The FLSA’s overtime protections apply to work performed off
premises, outside of the employer’s view, “and sometimes at odd hours, where an
employer’s concurrent knowledge of an employee’s labor is not the norm.”

The court went on to say that an employer that knows that an
employee is working but doesn’t want the employee to perform that work has a
duty to make every effort to prevent the work from being done to avoid overtime
liability. Gotham argued that its rule prohibiting
unauthorized overtime was a sufficient effort to prevent unwanted overtime. But
the court disagreed, pointing out that Gotham
could have taken other, more effective steps to reduce its overtime liability, such
as disciplining nurses who violated the policy or contracting with the hospital
to pay an enhanced fee for overtime hours.

Different Ninth Circuit Standard

In deciding this case, the appeals court rejected a more
permissive standard used by the federal Ninth Circuit Court of Appeals, which
covers California.
In a prior case, the Ninth Circuit held that an employer wasn’t on the hook for
overtime premium pay when employees knew that overtime work wasn’t expected, weren’t
pressured to work overtime, and could have completed their work during normal
business hours.

What You Can Do

As this new decision underscores, an employer will seldom be able
to argue successfully that it didn’t know about the unauthorized overtime or
that it made a sufficient effort to prevent the overtime work. California employers should note that even though the
Ninth Circuit has adopted a more employer-friendly stance on the subject of
paying for unauthorized overtime under the FLSA, California state law is stricter and would
in most cases require an employer to pay for unauthorized overtime.

Nonetheless, as the court in this case suggested, employers can
take steps to limit unauthorized overtime work. Consider implementing a policy
informing employees that all overtime must be approved in advance—and make sure
that the policy spells out the disciplinary consequences of violations. Here is
suggested language: “Nonexempt employees are
not permitted to work in excess of their regularly scheduled hours without
their supervisor’s advance written approval. Working overtime without prior
supervisor authorization may result in disciplinary action, up to and including
termination.”

You can read the new decision online at www.ca2.uscourts.gov/opinions.htm.

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1 Chao v. Gotham Registry, Inc., U.S.C.A. 2nd Cir. No. 06-2432,
2008