Global Compliance Desk – United States

United States: Recent Case Laws

Wisconsin: Compensability of working during Meal Periods

The U.S. Court of Appeals for the Seventh Circuit recently ruled on Wisconsin wage and hours laws concerning the compensability of meal periods. In Wirth v. RLJ Dental (“Wirth”), the Court focused on whether the employer provided a qualifying meal break in the first instance, not on whether employees decided to work during that time. 

According to Wisconsin Labor Law, employees who work for 6 consecutive hours must be provided with an uninterrupted meal period of at least 30 minutes (Wisconsin Administrative Code DWD 274.02). The meal period is unpaid unless the employee is required to work during that time, in which case the employee must be paid for the time worked. During the break time, the employee must be completely relieved from duty for the purposes of eating regular meals and must be permitted to leave the employer’s premises.  If the employee is required to perform any duties while eating, whether active or inactive, then they are not considered completely relieved from duty.

The Case: In Wirth v. RLJ Dental, the employer provided a one-hour unpaid lunch break, but the employee would sometimes return early from her break, sometimes as early as 10-15 minutes before the end of the hour. The employer paid her for the time she was clocked in, but the employer did not pay her for the time she was clocked out. 

Wirth eventually filed a lawsuit in the U.S. District Court for the Eastern District of Wisconsin. Wirth claimed that she was owed compensation for the time she spent working during her lunch break if the duration of the break was less than 30 minutes. The district court disagreed, and Wirth appealed in the Seventh Circuit Court of Appeal. 

Findings of the Court of Appeals – The Appeals Court in its judgment found that the employer (“RLJ”) allowed a regular lunch break from 1-2 pm and their policies and practices did not show that the employee was required to work during their lunch break or that the employer discouraged their employees from taking a full lunch break. In fact, Wirth’s supervisor repeatedly instructed her that she was required to take full lunch breaks, but Wirth ignored these instructions. The court also found that Wirth was well aware of the law and purposefully manipulated her lunch hour to increase her earnings. The Court explained that the focus is on what the employer provides, not what the employee elects. Since  RLJ  provided a lunch break of at least 30 minutes during which Wirth was completely relieved from duty, Wirth was not entitled to be paid even if she claimed that she was working during a shorter break. The court ruled that RLJ was not obligated under the law to pay her for the time she was off the clock, hence the time spent working during the lunch break was not compensable.

Take Away

The Wirth case provides important guidance about when working during lunch breaks becomes compensable and how employers can ensure they are complying with the law.

Employers should provide clear policies and guidelines for meal and rest breaks, communicate these policies to employees, and monitor compliance. They should also keep accurate records of employees’ work hours, including time worked during meal and rest breaks.

Court of Appeals Ruling on Deduction of Paid Time Off 

On March 15, 2023, in the case of Higgins v. Bayada Home Health Care, the Appeals Court ruled that an employer did not violate the Fair Labor Standards Act (FLSA) when it deducted paid time off from salaried workers who failed to meet productivity goals.

The Court of Appeal says that if employees are failing to meet productivity quotas, employers can go ahead and dock their paid time off (PTO).

The opinion from the 3rd U.S. Circuit Court of Appeals only applies in Delaware, New Jersey, and Pennsylvania. However, this is the first time a federal appeals court has been asked whether PTO counts as part of an employee’s salary. 

The Case: Bayada Home Health Care established a productivity system for its salaried employees. Employees who exceeded productivity minimums got paid extra. Meanwhile, employees who missed their weekly minimums had their PTO banks reduced.

Under the FLSA, employees are entitled to be paid a minimum wage for all hours worked, and 1.5x their regular rate of pay if they work more than 40 hours in a work week. However, the FLSA exempts from its overtime requirement individuals “employed in a bona fide executive, administrative, or professional capacity.”

Exempt employees must perform certain job duties and must be paid on a “salary basis,” meaning that the employee regularly receives a predetermined amount of pay period on a weekly, or less frequent basis, without reductions for quality or quantity of work performed.  Failure to pay such employees on a salary basis causes the employees to lose their status as exempt workers, thus entitling them to overtime pay requirements.

Findings of the Court of Appeals – According to the Court, if Bayada did deduct from its exempt employees’ base salaries to make up for productivity deficits, the deductions would directly affect their exempt status, as their base salary would become dependent on the quantity of time worked. As a result, the employees would no longer be considered exempt, and instead be entitled to overtime pay – 1.5x their regular rate of pay – for any hours worked in excess of 40 hours per week. The court found the employees were properly classified as exempt employees and thus not entitled to overtime pay.

Now, the 3rd Circuit has held that PTO is not part of an employee’s salary, so deductions are not a violation. The Court reasoned that PTO does not impact an employee’s base wages or salary that they are regularly paid, where a salary is a fixed amount of compensation regularly received. Employees do not receive more or less money in their paychecks depending on whether they have or have not used their PTO in any given pay period as there is no correlation between the two.

Take Away: This groundbreaking ruling on Paid Time Off deduction on the basis of employee productivity could impact compensation and benefits practices nationwide.