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Media Alerts - Secretary United States Department of Labor v. American Future Systems, Inc. d/b/a Progressive Business Publications, a
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October 17, 2017
  Secretary United States Department of Labor v. American Future Systems, Inc. d/b/a Progressive Business Publications, a
Headline: Employers are required to compensate employees for all rest breaks of twenty minutes or less.

Area of Law: Labor and Employment Law

Issue(s) Presented: Is an employer, who permits employees to take breaks during working hours for any reason, required under the Fair Labor Standards Act to compensate employees for any breaks of twenty minutes or less.

Brief Summary: The Fair Labor Standards Act requires employers to compensate their employees for any break periods of twenty minutes or less. American Future Systems d/b/a Progressive Business Publications (Progressive), and its President, Edward Satell, instituted a "flex time" policy in which employees were entitled to log off of their computers throughout the work day at will and for any reason. However, employees were only compensated for the time spent logged in. Progressive did not consider its employees' "flex time" as a "break," and argued that it was therefore not a violation of the FLSA to deny compensation. The Third Circuit held that Progressive's "flex time" did constitute breaks, and that it was required to compensate employees for any breaks of twenty minutes of less. Furthermore, the Third Circuit awarded liquidated damages for the compensation that Progressive had failed to pay its employees.

Extended Summary: Progressive distributes business publications, which it sells through sales representatives. Its sales representatives are paid an hourly wage and they are evaluated on their performance while logged in to the system. They receive extra compensation and bonuses based on sales rates per hour. They are also expected to maintain a certain sales rate per hour while logged in or can be disciplined or even sent home for the day. In 2009, Progressive transitioned from a break policy in which employees received two fifteen-minute breaks per day to a "flex time" system. Under the new system, employees were allowed to take "flex time" at will for any reason simply by logging off the system. This "flex time" included using the bathroom or taking a coffee break. There was no limit set on the duration; however, once the employee was logged off for more than ninety seconds, he was considered on "flex time." Furthermore, employees were only compensated for time that they were logged in to the system; they were not compensated for "flex time."

Under the new system, employees were also required to estimate their expected working hours over a two-week period. Employees could choose to work anytime Monday-Friday between the hours of 8:30-5:30. Employees could not work more than forty hours per week, and they were required to meet their estimated goals. Under that system, the average employee was only compensated for just over five hours per day at the federal minimum wage of $7.25/hour.

The Secretary of the United States Department of Labor brought this lawsuit on behalf of Progressive's employees for violation of the Fair Labor Standards Act, which requires employers to compensate employees for all breaks of twenty minutes or less. The district court granted partial summary judgment to the Secretary on its claim that Progressive's employees were denied federal minimum wages through the failure to compensate break times of twenty minutes or less. The district court also granted liquidated damages in an equal amount for the compensation Progressive withheld from its employees. In so doing, the district court applied the Department of Labor, Wage and Hour Division's ("WHD") interpretation of the FLSA. Under that interpretation, breaks of five to twenty minutes are viewed as "common in the industry," "promote the efficiency of the employee," and are "customarily paid." As such, breaks of twenty minutes or less must be compensated and count as working hours.

On appeal, Progressive claimed that its "flex time" hours were not breaks. It argued that employees are not working unless they are logged into the system. Its employees are free to log out at any time for any duration; when employees log back in, they are back at work. The Third Circuit held that this view of "work" conflicts with the purpose of the FLSA. The FLSA requires employers to compensate employees for "hours worked," but does not define "work." The flex time provided for by Progressive, however, is clearly a "break" under the FLSA. The Court explained that, under Progressive's system, employees are forced to choose between being compensated for working hours and satisfying basic needs, such as using the bathroom, which would require more than ninety seconds.

Next, Progressive argued that the WHD's interpretation was given too much deference by the district court. However, the Third Circuit agreed with the district court's reliance on the WHD for several reasons. First, the WHD's interpretation was ratified by Congress in 1940. Second, the Department of Labor has consistently relied on the WHD's interpretation for over 46 years. Third, the Third Circuit found the interpretation to reasonable based on the language of the FLSA.

Finally, Progressive argued that the district court's reliance on 29 C.F.R. § 785.18 - which states that employees must be compensated for breaks of twenty minutes or less - as a bright-line rule was wrong. Progressive argued that 29 C.F.R. § 785.16 is more applicable. Under § 785.16, periods during which employees are "completely relieved of duties" and for personal reasons are not considered working hours. The Third Circuit disagreed. It noted that § 785.16 is a general section and § 785.18 is more narrowly defined to specifically address breaks of twenty minutes or less. Furthermore, such breaks are viewed by the WHD as time that improves the effectiveness of workers. Therefore, the short breaks are as much for the benefit of employers as they are personal in nature.

Progressive then claimed that allowing employees to take paid breaks under its flex-time system would lead to employees taking an unlimited number of nineteen-minute breaks throughout the day. The Third Circuit reasoned that proper recourse for such action by an employee was discipline or termination, not withholding of wages. Finally, the Third Circuit also affirmed the district court's award of liquidated damages equal to the compensation withheld.
The Third Circuit, thus, affirmed the judgment of the district court.

The full opinion can be found at http://www2.ca3.uscourts.gov/opinarch/162685p.pdf

Panel: McKee, Rendell, Fuentes, Circuit Judges

Argument Date: February 9, 2017

Date of Issued Opinion: October 13, 2017

Docket Number: No. 16-2685

Decided: Affirmed

Case Alert Author: Michael R. DeAngelo

Counsel: Alfred W. Putnam, Jr., Esq, Dorothy A. Hickok, Esq., Sarah E. Bouchard, Esq., and Lincoln O. Bisbee, Esq. for Appellant; M. Patricia Smith, Esq., Jennifer S. Brand, Esq., Paul L. Frieden, Esq., and Rachel Goldberg, Esq. for Appellee; Jonathan S. Krause, Esq. for Amicus-Appellant; Margaret W. Williamson, Esq. for Amicus-Appellee

Author of Opinion: McKee, Circuit Judge

Circuit: Third Circuit

Case Alert Circuit Supervisor: Professor Mary E. Levy

    Posted By: Susan DeJarnatt @ 10/17/2017 12:34 PM     3rd Circuit  

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