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Secretary United States Department of Labor v. American Future Systems, Inc.

United States Court of Appeals, Third Circuit

October 13, 2017

AMERICAN FUTURE SYSTEMS, INC. d/b/a PROGRESSIVE BUSINESS PUBLICATIONS, a Corporation; EDWARD SATELL, Individually and as President of the above referenced Corporation, Appellants

          Argued February 9, 2017


          Alfred W. Putnam, Jr., Esq. [ARGUED] Dorothy A. Hickok, Esq. Drinker Biddle & Reath, Sarah E. Bouchard, Esq. Morgan, Lewis & Bockius, Lincoln O. Bisbee, Esq. Morgan, Lewis & Bockius Attorneys for Appellants

          M. Patricia Smith, Esq. Jennifer S. Brand, Esq. Paul L. Frieden, Esq. Rachel Goldberg, Esq. [ARGUED] Office of the Solicitor U.S. Department of Labor Attorneys for Appellee

          Jonathan S. Krause, Esq. Klehr Harrison Harvey Branzburg Attorney for Amicus-Appellant

          Margaret W. Williamson, Esq. A Better Balance Attorney for Amicus-Appellee

          Before: McKEE, RENDELL, FUENTES, Circuit Judges.


          McKEE, Circuit Judge.


         We are asked to decide whether the Fair Labor Standards Act requires employers to compensate employees for breaks of 20 minutes or less during which they are logged off of their computers and free of any work related duties. For the reasons set forth below, we conclude that the Fair Labor Standards Act does require employers to compensate employees for all rest breaks of twenty minutes or less. Accordingly, we will affirm the District Court's decision.


         American Future Systems, d/b/a Progressive Business Publications, publishes and distributes business publications and sells them through its sales representatives. Edward Satell is the President, CEO, and owner of the company. Sales representatives are paid an hourly wage and receive bonuses based on the number of sales per hour while they are logged onto the computer at their workstation. They also receive extra compensation if they maintain a certain sales-per-hour level over a given two-week period.

         Progressive previously had a policy that gave employees two fifteen-minute paid breaks per day. In 2009, Progressive changed its policy by eliminating paid breaks but allowing employees to log off of their computers at any time. However, employees are only paid for time they are logged on. Progressive refers to this as "flexible time" or "flex time" and explains that it "arises out of an employer's policy that maximizes its employees' ability to take breaks from work at any time, for any reason, and for any duration."[2]

         Furthermore, under this policy, every two weeks, sales representatives estimate the total number of hours that they expect to work during the upcoming two-week pay period. They are subject to discipline, including termination, for failing to work the number of hours they commit to.[3]Progressive also sends representatives home for the day if their sales are not high enough[4] and sets fixed work schedules or daily requirements for representatives when that is deemed necessary.[5]

         Apart from those requirements, representatives can decide when they will work between the hours of 8:30 AM and 5:00 PM from Monday to Friday, so long as they do not work more than forty hours each week.[6] As noted above, during the work day, they can log off of their computers at any time, for any reason, and for any length of time and may leave the office when they are logged off. Employees choose their start and end time and can take as many breaks as they please. However, Progressive only pays sales representatives for time they are logged off of their computers if they are logged off for less than ninety seconds. This includes time they are logged off to use the bathroom or get coffee. The policy also applies to any break an employee may decide to take after a particularly difficult sales call to get ready for the next call. On average, representatives are each paid for just over five hours per day at the federal minimum wage of $7.25 per hour.[7]

         The Secretary filed suit against Progressive and Satell alleging that they violated the FLSA by failing to pay the federal minimum wage to employees subject to this policy, and by failing to maintain mandatory time records.[8] The Secretary of Labor argued that this policy violated section 6 of the Fair Labor Standards Act[9] "by failing to compensate . . . sales representative employees for break[s] of twenty minutes or less . . . ."[10] The Secretary sought to recover unpaid compensation owed to Progressive's employees, an equal amount in liquidated damages, and a permanent injunction enjoining Progressive from committing future violations.[11]

         Progressive moved for summary judgment, and the Secretary moved for partial summary judgment on select issues, including its minimum wage claim and claim for liquidated damages. The District Court denied Progressive's motion and granted the Secretary's motion in part.[12] In doing so, the court noted that the Department of Labor ("DOL") has consistently applied the Wage and Hour Division's ("WHD")[13] interpretation of the FLSA under 29 C.F.R. § 785.18 to this kind of break. That regulation provides that:

Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry. They promote the efficiency of the employee and are customarily paid for as working time. They must be counted as hours worked. Compensable time of rest periods may not be offset against other working time such as compensable waiting time or on-call time.[14]

         The District Court afforded the Secretary's interpretation of section 785.18 substantial deference.[15] It agreed that section 785.18 created a bright-line rule and concluded that Progressive therefore violated the FLSA by failing to pay its employees for rest breaks of twenty minutes or less. This appeal followed.


         The District Court had jurisdiction under 28 U.S.C. § 1331. We exercise jurisdiction pursuant to 28 U.S.C. § 1291. We review a grant of summary judgment de novo.[16]Summary judgment is appropriate where the moving party is entitled to judgment as a matter of law, and there is no genuine dispute as to any material fact.[17] In reviewing a motion for summary judgment, we view the evidence in the light most favorable to the non-moving party.[18] We refrain from making credibility determinations or weighing the evidence.[19]

         We review the District Court's decision to deny or limit liquidated damages for abuse of discretion.[20] Although we must apply the clearly erroneous standard of Federal Rule of Civil Procedure 52(a) when reviewing the District Court's findings of fact "which underlie its 'good faith' and 'reasonableness' determinations . . . and the finding of subjective good faith itself, we exercise plenary review of the [D]istrict [C]ourt's legal conclusion that [a party] had 'reasonable grounds for believing' that its violative conduct was not a violation of the FLSA."[21]


         Progressive advances three arguments on appeal: (1) that time spent logged off under its flexible break policy categorically does not constitute work; (2) that the District Court erred in finding that WHD's interpretive regulation on breaks less than twenty minutes long, 29 C.F.R § 785.18, is entitled to substantial deference; and (3) that the District Court erred in adopting the bright-line rule embodied in 29 C.F.R. § 785.18 rather than using a fact-specific analysis. We do not find any of these arguments persuasive.

         A. Applicability of the FLSA

         Progressive first argues that under its policy, because employees are basically free to do anything they choose and can even leave the job site when logged off of their computers, the time when employees are logged off of their computers does not constitute "work, " and therefore, the FLSA does not apply. We disagree.

         The FLSA governs compensation for "hours worked."[22] But it does not define "work."[23] It is well established that some breaks constitute "hours worked" under the FLSA.[24] Thus, hours worked is not limited to the time an employee actually performs his or her job duties.[25] The FLSA does not require employers to provide their employees with breaks. However, if an employer chooses to provide short breaks of five to twenty minutes, the employer is required to compensate employees for such breaks as hours worked.[26]

         Progressive argues that it does not have a "break policy" per se. Rather, it claims that the "flexible time" policy described above, which allows employees to do whatever they wish and be wherever they want for periods of twenty minutes or less while logged off of their computers, does not constitute "hours worked." According to Progressive, since the FLSA does not require it to provide breaks, it does not need to compensate its employees for these periods.

         Although Progressive's position may have some superficial appeal, it cannot withstand scrutiny. According to Progressive, if an employer has a policy allowing employees to log off and leave their work stations at any time, for any reason, it does not have to compensate employees if they take a break. Progressive does not deny that it permits employees to log off; it just refuses to call those time periods "breaks." This misses the point of the FLSA's regulatory scheme. Its protections cannot be negated by employers' characterizations that deprive employees of rights they are entitled to under the FLSA.[27] The "log off" times are clearly "breaks" to which the FLSA applies.

         The policy that Progressive refers to as "flexible time" forces employees to choose between such basic necessities as going to the bathroom or getting paid unless the employee can sprint from computer to bathroom, relieve him or herself while there, and then sprint back to his or her computer in less than ninety seconds. If the employee can somehow manage to do that, he or she will be paid for the intervening period. If the employee requires more than ninety seconds to get to the bathroom and back, the employee will not be paid for the period logged off of, and away from, the employee's computer. That result is absolutely contrary to the FLSA.[28] The FLSA is a "humanitarian and remedial legislation" and "has been liberally interpreted."[29]

         Although employers need not have any break policy, we refuse to hold that the FLSA allows employers to circumvent its remedial mandates by disguising a break policy as "flexible time, " as Progressive is seeking to do here. Accordingly, we find that Progressive does have a break policy, and thus, the FLSA applies. We therefore must determine if this break policy is contrary to the FLSA.

         B. Skidmore Deference

         The FLSA is silent as to the specific requirements regarding "break" periods, but WHD's interpretation is clear. The parties agreed at the District Court level that Skidmore[30]would determine the level of deference owed to WHD's interpretation in section 785.18. Progressive argues that the District Court overstated this level of deference. It contends that WHD's interpretation "do[es] not have the force of law."[31] Instead, the regulations are merely "positions [the DOL] will take in the enforcement of the Act."[32] While it is true that these interpretations are not technically "law, " the regulations nevertheless "constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance."[33]

         An agency's interpretation of a statute "may merit some deference whatever its form, given the specialized experience and broader investigations and information available to the agency . . ., and given the value of uniformity in its administrative and judicial understandings of what a national law requires."[34] The weight afforded the agency's interpretation "will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control."[35]

         We have "adopted Mead's conceptualization of the Skidmore framework as a 'sliding-scale' test in which the level of weight afforded to an interpretation varies depending on [the] analysis of the enumerated factors."[36] Those factors include whether the interpretation was: (1) issued contemporaneously with the statute; (2) consistent with other agency pronouncements; (3) reasonable given the language and purposes of the statute; (4) within the expertise of the relevant agency; and (5) part of a longstanding and unchanging policy.[37]

         Applying these factors, we conclude that WHD's interpretation, as set forth in section 785.18, should be afforded the highest level of deference under Skidmore. First, Congress ratified WHD's interpretation, which had been in place since 1940, by enacting former section 16(c) of the FLSA in 1949.[38] It states that:

Any order, regulation, or interpretation of the Administrator of the Wage and Hour Division or of the Secretary of Labor . . . in effect under the provisions of the Fair Labor Standards Act of 1938, as amended, on the effective date of this Act, shall remain in effect as an order, regulation, interpretation, . . . except to the extent that any such order, regulation, interpretation . . . may be inconsistent with the provisions of the Act . . . .[39]

         Second, WHD's interpretation of the regulations controlling this dispute has been consistent throughout the various opinion letters the DOL has issued to address this matter.[40] The Department of Labor has consistently held for over 46 years that such breaks are hours worked under the FLSA, without evaluating the relative merits of an employee's activities. This position [is] found at 29 C.F.R. 785.18 . . . . The compensability of short breaks by workers has seldom, if ever, been questioned . . . . The FLSA does not require an employer to provide its employees with rest periods or breaks. If the employer decides to permit short breaks, however, the time is compensable hours worked.[41]

         Third, we have no difficulty concluding that WHD's interpretation is reasonable given the language and purpose of the FLSA. In enacting the FLSA, Congress recognized the effect of labor conditions that are "detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers."[42] The existence of such conditions:

(1) causes commerce and the channels and instrumentalities of commerce to be used to spread and perpetuate such labor conditions among the workers of the several States; (2) burdens commerce and the free flow of goods in commerce; (3) constitutes an unfair method of competition in commerce; (4) leads to labor disputes burdening and obstructing commerce and the free flow of goods in commerce; and (5) interferes with the orderly and fair marketing of goods in commerce.[43]

         Accordingly, the FLSA was designed "to correct and as rapidly as practicable to eliminate the conditions above referred to in such industries without substantially curtailing employment or earning power."[44] As the District Court explained, it is readily apparent that by safeguarding employees from having their wages withheld when they take breaks of twenty minutes or less "to visit the bathroom, stretch their legs, get a cup of coffee, or simply clear their head after a difficult stretch of work, the regulation undoubtedly protects employee health and general well-being by not dissuading employees from taking such breaks when they are needed."[45]

         This interpretation was well within WHD's expertise.[46] Lastly, as the District Court correctly pointed out, "[s]ection 785.18 is a rule that is both longstanding and unchanging. The text of the rule today is identical to the text of the rule when it was implemented in 1961."[47] Since all of these factors favor WHD's position, the District Court was correct to apply substantial Skidmore deference to section 785.18.

         C. Applicability of 29 C.F.R. § 785.16 versus 29 C.F.R. § 785.18

         At the District Court level, Progressive also argued that because its employees used the time when they were logged off solely for their own benefit, 29 C.F.R. § 785.16, as opposed to 29 C.F.R. § 785.18, applies to its policy.[48] Before addressing the issue of applying section 785.18 as a bright-line rule, we wish to elaborate on this and note that the District Court correctly held that section 785.18 is applicable to this case.

         Section 785.16 provides that:

Periods during which an employee is completely relieved from duty and which are long enough to enable him to use the time effectively for his own purposes are not hours worked. He is not completely relieved from duty and cannot use the time effectively for his own purposes unless he is definitely told in advance that he may leave the job and that he will not have to commence work until a definitely specified hour has arrived. Whether the time is long enough to enable ...

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