7th Circuit: Overtime Pay Not Mandated for Incidental Activities

The Fair Labor Standards Act (FLSA) requires an employer to pay overtime for activities that are merely incidental to employees’ core job responsibilities when the employer elects—either by contract, custom, or practice—to pay for those incidental activities. However, are those incidental activities compensable even when an employee fails to meet the requirements established by the employer’s custom or practice? The U.S. Court of Appeals for the 7th Circuit (whose rulings apply to all Illinois, Indiana, and Wisconsin employers) recently addressed this question.

Background

The FLSA was enacted in 1938 and requires certain employers to pay overtime. Under the Act, only certain activities qualify for overtime, including activities integral to an employee’s job—principal activities—so long as an employer has reason to know the employee is performing those activities.

Alternatively, activities that are “merely incidental” to an employee’s core job responsibilities don’t count toward overtime. However, when an employer elects—either by contract, custom, or practice—to pay for those incidental activities, the FLSA obliges the employer to pay overtime for them, as well.

Off and On

NCR Corporation is in the business of manufacturing, selling, and supporting point-of-sale systems and ATMs. It employs thousands of customer engineers (CEs) to service devices in the field. These employees work remotely, with minimal on-site supervision.

NCR’s policies instructed their CEs to work only during their official shifts and prohibited off-the-clock work, as well as required them to record their time in an electronic timekeeping system. If a CE worked overtime contrary to NCR guidance, they would be paid for the time, but only if it was recorded.

Michael Meadows was employed as a CE for NCR from 2008 to 2019. He knew about NCR’s policies prohibiting overtime and its reporting requirements. Under company practice, when he recorded unauthorized overtime, he was paid for the time, including time spent on activities he performed before or after his shifts or during mealtimes, such as responding to work calls and stocking his work van. However, when he didn’t record the time, he wasn’t compensated.

Meadows sued NCR under the FLSA and Illinois’s parallel minimum wage law, seeking compensation for his unrecorded overtime work. The company asked the court to dismiss the case in its favor without a trial, arguing that because the activities he performed outside his normal shift weren’t integral to his work, they weren’t compensable under the FLSA.

The district court decided that to hold NCR liable, Meadows would have to prove it had a custom or practice of paying CEs for these types of incidental activities and that it had constructive knowledge he performed these activities. The district court denied NCR’s request for dismissal, and the case went to trial.

After the jury found for Meadows, the district court denied NCR’s request for a new trial, determining the employer couldn’t escape liability by requiring overtime to be recorded because it had constructive knowledge he was performing those activities, recorded or not. In other words, because NCR paid for these activities when they were recorded, he should have been paid for his unrecorded overtime, as well. NCR appealed.

Appeal

On appeal, NCR argued the district court erred by concluding the company had to pay overtime for unrecorded incidental activities if it compensated employees who recorded those same activities because it had constructive knowledge the activities were being performed. The 7th Circuit held the district court correctly identified that the FLSA doesn’t require payment for incidental activities unless the employer has agreed to pay for those activities by contract, custom, or practice.

However, the 7th Circuit held that an employer’s knowledge of an employee’s incidental activity is immaterial when the employer has no obligation to pay for the activity in the first place. It explained that NCR’s custom or practice of compensating overtime required that the overtime be recorded, and that requirement was inextricable from the custom itself.

In other words, the 7th Circuit concluded the FLSA doesn’t require overtime payment for the performance of incidental activities that an employer has chosen to compensate by custom or practice if the employee failed to comply with the requirements imposed by that custom or practice. Meadows v. NCR Corp., Nos. 21-3309 & 22-1383 (7th Cir., Oct. 5, 2023).

Bottom Line

Although incidental activities are compensable under the FLSA if the employer has chosen to compensate the activities through custom or practice, any requirements associated with that custom must be met to receive compensation. You should ensure any practice or custom that compensates employees for incidental activities is applied consistently with the same requirements. If you have concerns about whether an employee’s activity is compensable under the FLSA, you should consult with a qualified attorney.

This article, slightly modified to note recent updates, was featured online in the Wisconsin Employment Law Letter and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.