Telecommuters—The Next Wave of Wage and Hour Litigation?

December 11, 2006 — 2,796 views  
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Many accommodating employers offer their employees the opportunity to work from home (telecommute) either on a regular or temporary basis. The flexibility of a telecommuting arrangement can benefit both employers and employees. However, the practical realities of allowing a nonexempt employee to work away from the principal worksite can lead to a minefield of wage and hour issues that an employer must carefully navigate in order to avoid potential liability.

As telecommuting has become more prevalent, there have been a number of lawsuits filed by telecommuting employees (often as class actions) claiming violation of various state and federal wage and hour laws. These lawsuits suggest a possible new trend in wage and hour litigation, and employers who currently have nonexempt telecommuting employees or are considering allowing nonexempt employees to telecommute should carefully consider the following issues:

Properly Recording the Hours Worked by a Telecommuting Employee

An employer must establish some mechanism to track the hours actually worked by a telecommuting employee. The Fair Labor Standards Act (FLSA) and many state laws require that an employer maintain payroll records accurately recording the total hours worked for each workday and workweek. 29 C.F.R. §516.2(a)(7). Employees working onsite can be required to punch a time clock or, if they self-report their hours by completing timecards, the employer has the ability to gauge the accuracy of these records because a supervisor can be physically present to observe and monitor the employee’s working time. With telecommuting employees, however, these methods are not feasible. For certain telecommuting employees, computer or telephone tracking systems, which generate time reports showing login and logout times, may be appropriate. Even with such systems in place, an employer must still ensure that it accurately records all other hours worked when the employee is not “logged on.” In this regard, the FLSA does not distinguish between work in an office and “work performed away from the premises or the job site, or even at home” and provides that “[i]f the employer knows or has reason to believe that the work is being performed, he must count the time as hours worked.” 29 C.F.R. §785.12. An employer should provide clear guidelines to telecommuting employees about how to record their hours and devise a method for confirming the hours reported.

Properly Compensating a Telecommuting Employee for All Hours Worked, Including Overtime

The FLSA requires employers to compensate their employees at or above the minimum wage for the first 40 hours worked in a given week and at one and one half times their regular rate for any hours worked beyond 40 (some states have more stringent overtime laws; for example, in California, overtime must be paid for hours worked in excess of eight hours in one workday).

An employer should attempt to control the hours worked by nonexempt telecommuters by requiring agreements that set specific work hour requirements and by requiring that any overtime be approved in advance. Employers must consistently enforce any such agreements in order to effectively rely on them. The FLSA provides: “In all such cases it is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. It cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so.” 29 C.F.R. §785.13.

In jurisdictions that do not have more restrictive wage and hour laws than the FLSA, an employer may consider whether its telecommuting employees come within the “home worker exception” of the FLSA, which allows an employer to pay an employee according to a reasonable compensation agreement when the employer cannot determine the exact number of hours that the employee works. 29 C.F.R. §785.23; Halferty v. Pulse Drug Co., Inc., 864 F.2d 1185 (5th Cir. 1989); Rudolph v. Metropolitan Airports Commission, 103 F.3d 677 (8th Cir. 1991). Two criteria must be met for the “home worker” exception to apply. First, there must be periods of the employee’s day spent at home during which the employee has complete freedom from his or her duties to the employer. Second, the employer and employee must have reached an agreement for the number of hours worked that is reasonable based on the circumstances. Because application of this exception is so fact specific, an employer should consult legal counsel before attempting to reach such an agreement with its telecommuting employees.

Requiring a Telecommuting Employee to Wait for Work or Instructions

In some of the recent litigation in this area, telecommuters have claimed that their employers required them to be readily available and/or waiting for work during the day, and, as a result, all such time should have been compensated because they could not freely pursue other activities. Determining whether such waiting time is an integral part of the job that must be compensated requires a fact specific analysis. 29 C.F.R. §785.16(a). More than 60 years ago, the Supreme Court distinguished between employees who are “waiting to be engaged” and those who are “engaged to wait.” The latter are entitled to be paid for waiting time. Employers should closely examine the nature of the work performed by the telecommuting employees as well as the amount of time such employees spend waiting for work or instructions. If a determination is made that waiting time is compensable, the employer should consider whether to establish a different rate of pay for waiting time. Also, employers may reduce or eliminate waiting time by clearly delineating work requirements in a written agreement with the telecommuting employee.

Requiring Telecommuters to Travel to the Employer’s Worksite

Generally, travel time to and from work does not constitute hours worked. 29 C.F.R. §785.35. If, however, travel occurs after an employee’s first principal activity in the workday, the “continuous workday” rule will make such travel compensable. 29 C.F.R. §790.6(a). In addition, if an employer requires an employee to travel to a different city for a special assignment, that travel time (minus the employee’s normal commute time) is considered hours worked and compensable. 29 C.F.R. §785.37. Many employers require their telecommuting employees to attend in person meetings or training or otherwise perform work at the employer’s worksite. In some of the recent telecommuter litigation, employees claimed they should have been paid for the time spent traveling to and from the employer’s worksite. Resolution of these claims will likely depend on multiple factors, including the frequency with which the employer requires the employee to travel to the employer’s worksite, the distance from the employee’s home to the employer’s worksite, and whether such travel occurs after the employee has started his or her workday or occurs during normal work hours. Designing and implementing a policy and practice that will exclude travel time pay by telecommuters requires a careful review of the particular circumstances of the telecommuting arrangement.

Other Potential Wage and Hour Related Claims

Other wage and hour related claims that have been alleged by telecommuting employees include claims for time spent preparing for and concluding their work activities while at home and claims for reimbursement for mileage associated with travel to the employer’s worksite or for home office equipment. The former activities may be non compensable as preliminary or postliminary under the Portal to Portal Act (which has been superseded by California law), and the latter is typically a question of state law. Thus in both cases, an employer’s defenses to such claims may depend on the governing law of the jurisdictions in which the employer and employee are located.

If an employer has a large number of telecommuting employees, the potential liability for running afoul of the applicable wage and hour laws can be significant because such cases are usually filed as class actions. Ensuring that telecommuting policies comply with all applicable federal and state laws is an important step in avoiding such liability.

Morgan Lewis’s Labor and Employment Practice Group and its wage and hour team regularly counsel employers on all facets of both federal and state wage and hour laws and are experienced in defending collective and class action wage and hour matters across the country. If you have any questions about the impact of wage and hour or other laws on telecommuting programs, feel free to contact any of the following Morgan Lewis attorneys: 

Barbara Miller 949.399.7107 [email protected] Irvine
Carol R. Freeman 650.843.7520 [email protected] Palo Alto
Michael J. Ossip 215.963.5761 [email protected] Philadelphia
Richard G. Rosenblatt 609.919.6609 [email protected] Princeton
Eric Meckley 415.442.1013 [email protected]  San Francisco
James J. Kelley 202.739.5095 [email protected] Washington, D.C.

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