Employers May Not Claim Voluntary Meal Break Payments as Credit for Overtime, 3rd Cir. Rules

Author: Michael Cardman, XpertHR Legal Editor

October 12, 2016

Just because an employer pays its employees for time spent in meal breaks, even though it is not required to do so, does not mean the employer may apply those payments to offset overtime due to the employees, a federal appeals court has ruled.

"There is no authority for the proposition that compensation already paid for hours of work can be used as an offset and thereby be counted a second time as statutorily required compensation for other hours of work," the 3rd US Circuit Court of Appeals held in Smiley v. E.I. Dupont De Nemours & Co., citing a friend-of-the-court brief filed by the US Department of Labor.

The Fair Labor Standards Act (FLSA) does allow employers to count certain types of extra compensation paid to employees as a credit toward any overtime the employees may be owed.

These forms of extra compensation -- including payments for working more than eight hours in a day, for working on weekends, or for working beyond the hours specified in an employment contract or collective-bargaining agreement -- also are among the few types of payments that may be excluded from the regular rate of pay when calculating how much overtime an employee is owed.

However, the FLSA does not expressly prohibit offsetting when the compensation used to offset overtime liability is included in the regular rate of pay.

The employer in the Smiley case had argued that the FLSA's silence on this issue indicates that offsetting is allowed when payments are included in the regular rate of pay - as it did with its voluntary meal payments.

However, the 3rd Circuit -- which covers employers operating in Delaware, New Jersey and Pennsylvania -- was not persuaded that silence implies consent. "While it is true that the statute does not explicitly set forth this prohibition, the policy rationales underlying the FLSA do not permit crediting compensation used in calculating an employee's regular rate of pay because it would allow employers to double-count the compensation," it concluded.