Employer can't pin overtime violations on payroll employee, 9th Cir. concludes

Dive Brief:

A staffing company, ESSG, whose client expressly instructed an ESSG payroll employee to enter time as regular hours instead of overtime was liable for violations of the federal Fair Labor Standards Act (FLSA) (Scalia v. Employer Solutions Staffing Group, LLC, No. 18-16493 (9th Cir. March 2, 2020)).
The employee, Michaela Haluptzok, had to dismiss numerous error messages from ESSG's payroll software and understood that not paying overtime for the qualifying employees was what was triggering the errors. She overrode the warnings and recorded the time at a regular rate, which eventually resulted in more than 1,000 overtime violations.
ESSG "chose Haluptzok as its agent for payroll processing, so it cannot disavow her actions merely because she lacked a specific job title or a certain level of seniority in the company," said the 9th U.S. Circuit Court of Appeals. "Allowing ESSG to evade liability simply because none of its 'supervisors' or 'managers' processed the payroll would create a loophole in the FLSA" and run counter to the purpose of the law. Accordingly, the 9th Circuit upheld a summary judgment ruling in favor of the Secretary of Labor.

Dive Insight:

This ruling demonstrates that employers cannot evade responsibility for willful wage and hour violations committed by employees even if the order to flout the law comes from a client rather than directly from the employer.

The FLSA requires that covered workers be paid time and a half their regular rate for all hours worked over 40 in a given workweek. And lawsuits alleging overtime errors, whether willful or inadvertent, tend to be costly for employers. McDonald's agreed to pay $26 million in November 2019 to settle wage and hour claims filed by California cooks and cashiers. Similarly, a nurse staffing firm paid more than $3 million earlier this year to settle a lawsuit claiming it improperly calculated the regular rate of pay, leading to overtime errors under state law.

Notably, the U.S. Department of Labor recently issued a new "regular rate" rule that explains when employers can exclude certain benefits from overtime calculations. And a new overtime salary threshold took effect Jan. 1, giving employers with a good reason to audit their overtime practices and train managers and employees on proper timekeeping and pay, experts said.