Payroll & Compensation

A Fine Line

There can be expensive fees for unpaid off-the-clock activities under the Fair Labor Standards Act. Knowing what qualifies is the tricky part.

By Erin Daruszka

Employers are increasingly facing class action lawsuits about what is a compensable work-related activity.

In the last three years, the Supreme Court has refined the boundaries of the Fair Labor Standards Act (FLSA) through decisions made in Sandifer v. U.S. Steel (2014) and Christopher v. SmithKline Beecham (2012). Both cases addressed wage and labor issues, and concluded in a manner favorable to employers.

In a case decided only last month -Integrity Staffing Solutions v. Busk -the Supreme Court considered whether or not employers needed to pay employees for their time spent waiting to pass security screenings upon completion of their shifts.

Warehouse workers were required to undergo security clearances at the end of their work shifts each day. This practice, conducted by many warehouse operations and retailers, serves as a means to minimize inventory and employee theft. Plaintiffs’ attorneys said Amazon’s staffing agency (Appellant Integrity Staffing Solution) might owe up to 400,000 workers in back wages of $100 million or more.

In an employer friendly decision, the Supreme Court unanimously ruled that employers do not need to pay employees for time spent in post-shift security screenings under the FLSA.
The Busk ruling is important because it will more than likely affect employer compensation practices. The decision also sets new standards for employers who have previously struggled to determine which of their employees’ off-the-clock duties need to be compensated for.
The case is not the first of its kind. More than a dozen class-action lawsuits have been filed against Amazon, as well as other companies that use security checkpoints at the end of employees’ shifts, including Apple Corp. and CVS Health Corp. While most types of security checks are performed relatively quickly, Amazon warehouse workers alleged that they were required to wait in line for nearly a half hour after clocking out. The employees filed a class action lawsuit claiming the unpaid time was a violation of their rights under the FLSA.

Under the FLSA, employers are not required to compensate employees for preliminary (pre-shift) and postliminary (post-shift) activities unless the activities are “integral and indispensable to the principal activities” of the job. To be integral and indispensable, an activity must be “necessary to the principal work performed” and “done for the benefit of the employer.”

For example, actions such as butchers sharpening their knives at a meatpacking plant or battery plant workers washing off traces of chemicals are deemed integral and indispensable to the principal activities, and therefore compensable. In the Busk case, the plaintiffs argued that the security screenings were solely for, the benefit of the employer, and thus integral and indispensable to the employee’s job.

The Supreme Court held the workers’ off-the-clock activities to be “integral and indispensable to the employee’s principal activities, and therefore compensable, if they are an intrinsic element of those [principal] activities and one with which the employee cannot dispense if he is to perform those [principal] activities.” The outcome was that the security screenings were not integral and indispensable to the job because if the security screenings were to be stopped, it would not affect the employees’ ability to complete their jobs.

Furthermore, the Court ruled that preliminary or postliminary activity might be required but still not be integral and indispensable to the actual job. Reducing the time spent on any pre- or post shift activity does not alter its relationship to the principal job that employees are paid to do.
Integrity Staffing did not employ its workers to undergo security screenings, but to retrieve products from warehouse shelves and package those products for shipment to Amazon customers. Whether or not brings in extra screeners to speed up the screening process, it does not affect employees’ core job of packing and shipping goods, and is therefore not compensable.

Why is There Confusion About This Topic?
Sometimes it’s difficult to define the scope of a principal activity. For instance, Mitchell v. King Packing Co. held that meatpacking workers are paid for the time of sharpening knives because dull knives would slow down work and affect the appearance of the product, hereby directly affecting their jobs. Similarly, in Steiner v. Mitchell, the Supreme Court has identified showering off chemicals at a battery manufacturing plant compensable because toxic chemical at the
plant could be a hazard to the employees. Now while showering off chemicals is compensable, putting on protective gear may not be. In Sandifer v. U.S. Steel, the Court ruled that the workers’ gear qualified as normal clothing, rather than professional gear put on directly for the job.

For employers, examples like these question whether ‘the principal activity’ refers only to a narrow, central duty or to a broader list of what activities would be integral tasks that are compensable under the FLSA. Employers should evaluate whether an activity is tied to the actual work an employee is hired to perform.

For example, preparing tools for a job that requires usage of those tools as a main activity, or donning and doffing safety equipment that would alter job performance if not taken, would qualify for payment.

Integrity Staffing Solutions v. Busk is of distinct interest because it presents incentives for both employers and employees. The Supreme Court’s decision has appropriately cleared the gray zone of compensable preliminary and postliminary activities, providing relief for employers nationwide who avoided a potential flood of wage claims. Organizations now do not have any incentive to hire additional security screeners in order to alleviate wait times.

However, one could argue employers utilizing such processes should consider other factors or incentives in determining compensation for this time. The Supreme Court did reference that unionized employees can seek compensation at the bargaining table, which can lead to collective bargaining process. Companies that pay minimum wage may be more vulnerable to unions organizing campaigns for dissatisfied workers. Small improvements in incentives can affect everyone in the workplace, potentially appeasing employees of the unpaid waiting time, which can reduce the chances of unions reacting in response to the case.

What Can Employers Do to Avoid Confusion?
Employers should always do their best to keep up to date and comply with the federal labor and employment laws. The Busk ruling only applies to the FLSA, and state and local ordinances may offer additional wage and hour obligations beyond that required by the FLSA.

For instance, the California Supreme Court holds that an employee is entitled to be paid for the time spent traveling to and from a remote work site on their employers’ buses. This shows that federal and state mandates differ substantially, and employers must keep up with all regulatory compliance regulations to avoid heavy fines.

To avoid any legal trouble, employers should take proactive measures in all steps of employment management, from initial hiring, work environment, and behavior to dismissals and education. Beyond the FLSA, employers need to familiarize themselves with Family and Medical Leave Act (FMLA), Age Discrimination in Employment Act (ADEA), Americans with Disability Act (ADA), Genetic Information Non- Discrimination Act (GINA), and more.

Whenever in doubt, employers should seek legal counsel for any specific questions and further clarifications. With the guidance of resources, companies can stay compliant with state and federal regulations, multi-state payroll, risk management, and benefits programs such as the Affordable Care Act (ACA).

With a plethora of evolving employment laws and regulations that will only grow more complex over time, organizations are more susceptible to missing legal updates. Add in the daily duties of human resources -onboarding, time keeping, payroll, and benefits -updates on the ever-changing regulations might just slip through the cracks and end up costing an employer dearly. Businesses should take advantage of ways to alleviate human resources challenges through management tools, outsourcing, or training to be more focused on employee retention strategies and building better companies. With a good HR team, employers can be assured that they stay compliant, save money, and ultimately be in business for the long-term.

Erin Daruszka is director of human capital consulting for TriNet.

Tags: January February 2015

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