Can Overtime Paid Even When It's Not Owed Be Used As An Offset Against Improperly Withheld Overtime?

By harley erbe

Imagine this scenario: An employer pays overtime for for periods it's not required to, but fails to pay overtime for periods when it should. In a claim asserting the employer's failure to pay overtime, can it claim the "bonus" overtime pay as an offset against any overtime that it's ordered to pay? There's currently a difference of opinion among federal courts of appeals on this question.

For example, Smiley v. E.I. DuPont De Nemours & Company was a "donning and doffing case." The employees sued for overtime compensation they claim they earned putting on and removing safety gear and uniforms and performing other activities before and after shifts. They also received three paid thirty-minute breaks per shift. The employer counted those breaks as working time, even though it wasn't legally required to do so. The federal trial court ruled that the employer could offset the unpaid "donning and doffing" time (which probably should've been paid under federal overtime law), with the money that the employees received for paid breaks that the employer wasn't legally obligated to provide.

The trial court was overturned on appeal. The federal court of appeals disapproved the offset argument. It determined that nothing in federal overtime law allows an employer to claim the type of offset the employer sought. Although admitting that federal overtime law doesn't expressly prohibit such offsets, the appellate court still concluded that the employer’s wage practices were contrary to the goals and broad remedial purpose of federal overtime law.

Conversely, federal appellate courts in Barefield v. Village of Winnetka and Avery v. City of Talladega upheld the use of compensation paid for non-work time as a credit against owed overtime compensation. Both cases involved paid meal breaks that were used to offset other unpaid work. The employees weren't entitled to paid meal breaks; thus, to the extent that they were entitled to compensation for other periods that hadn't been paid, the employers were permitted to use the gratuitous paid meal break time as an offset against overtime compensation that they may have failed to pay. The difference between these decisions is that the Smiley decision, issued in 2016, relied on an argument against such offsets made by the United States Department of Labor. That was literally the first time that the Department of Labor had spoken on the offset issue in any manner.

The United States Supreme Court has been asked to review this issue. The concern is that employers within one federal appeals circuit aren't allowed to use gratuitous wage payments as an offset against unpaid overtime liability, yet employers within two other circuits are. That sort of "circuit split" can cause uncertainty for employers who simultaneously operate in federal jurisdictions that allow the offset and those that don't. Of course, employers who operate in none of the federal jurisdictions that have rendered a decision on this question have no idea what the governing law would be in their areas; if they assume that an offset would be allowed, they do so at their own risk until their local federal court of appeals chimes in.  

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