Automatic meal period deductions – A common practice
Some good news for employers. In an important victory for employers, the U.S. Court of Appeals for the Sixth Circuit, in Frye v. Baptist Memorial Hospital, recently affirmed the decision of the Western District of Tennessee to decertify a collective action brought under the FLSA challenging an employer’s automatic deduction policy for meal periods.
An epidemic of FLSA meal period litigation
In the past several years, there has been a virtual epidemic of FLSA collective action lawsuits filed against employers for failing to pay for meal periods that were missed or interrupted due to work performed by employees. One of the main arguments made by the plaintiffs in these suits involved the fact that automatic deductions for meal periods failed to recognize when works was performed during a meal period. Most employers that had an auto-deduct policy also had a policy for overriding the automatic deduction. Problems arose, however, if the override policy was either discouraged by management or not followed at all. Under the FLSA, groups of employees can band together and file a lawsuit – called a “collective action” – to challenge a common practice that violates the FLSA. This was and is fertile ground for plaintiffs’ attorneys across the U. S.
FLSA collective actions are unique
In a collective action (unlike a class action lawsuit), an employee can only become a plaintiff if the employee affirmatively “opts-in” to the suit. In class actions, the employees are automatically members of the class unless they “opt-out”. In the course of litigation, there are usually two phases: conditional certification of the “class” and then, after discovery, a final decision on whether the conditional certification should stand and the case continue as to that certified class. If there is no common factual thread that runs through the members of the class, then the certification will be denied and individual claims must be tried separately on their own factual merits. Defending collective actions can be hugely expensive for any employer because of the number of potential plaintiffs and the fact that under the FLSA the employees can recover the amount of underpayment (most of which can be at overtime rates); plus double that amount in liquidated damages; going back as much as three years; and plus the attorney’s fees for the successful plaintiff’s attorneys.
In this case there were too many factual differences
The named plaintiff, a nurse at one of three Baptist Memorial acute care hospitals, alleged that Baptist had violated the FLSA’s requirement that employees be paid for all time worked based on its policy and system of automatically deducting pay for employees’ meal breaks. Baptist required its hourly employees to take daily, uncompensated meal breaks and the payroll system automatically deducts an amount from each hourly employee’s paycheck for such breaks. The deduction policy applied system-wide at Baptist, but the procedures for reporting interrupted or missed meal breaks varied among hospitals and departments. After conditionally certifying a proposed class of employees who were subject to the automatic deduction, the District Court decertified the class at the stricter second stage, finding that the differences among the plaintiffs outweighed the similarities of the practices to which they were subjected. The plaintiff appealed.
Auto-Deduct policy does not violate FLSA
The appeals court made clear that the use of an automatic-deduction policy by itself is compatible with the FLSA and cannot serve as “the lone point of similarity supporting class certification.” The opinion reiterated that the general factors to be weighed by the court in the second stage of certification are the plaintiffs’ disparate factual and employment settings, the likelihood of individualized defenses, and degree of fairness and procedural impact of resolving the claims collectively. In holding that the named plaintiff failed to demonstrate that he is “similarly situated” to the opt-in class, the court emphasized the lack of a common FLSA theory based on the employees’ unique experiences. The court noted that the majority of the deposed opt-in plaintiffs knew of Baptist Memorial’s procedures for reporting a missed lunch, successfully used those procedures, and were not discouraged from reporting missed lunches. Further, those plaintiffs who claimed otherwise had varying allegations – from claims that a department had no procedure for reporting missed lunches to claims that reporting was discouraged, voluntarily avoided, or simply forgotten. The court did not address the merits of the claims but did note that the evidence offered was “perhaps indicative of individual FLSA violations.”
What does this mean for employers?
This case is good news for employers and deals another blow to the large number of pending collective actions challenging employers’ automatic meal period deduction policies. Employers are still not out of the woods because there may be pockets of non compliance – a particular department or a particular supervisor – where a common factual thread might allow the certification of a collective action. But that limited collective action would be much smaller than a company-wide action – and much less expensive to defend.
Employers should review their own policies and make sure that all time worked during meal periods is being compensated and that employees are fully trained and instructed on how to use any system established to override an automatic meal period deduction. Document that training and keep good records. Of course, that’s always good practice!
If you have any questions please contact Steve Lyman at slyman@wp.hallrender.com or Bruce Bagdady at bbagdady@wp.hallrender.com or your regular Hall Render attorney.
