September 11, 2018
Appeal from the United States District Court for the Middle
District of Pennsylvania (D.C. No. 4-16-cv-01512) Magistrate
Judge: Hon. Karoline Mehalchick
Casandra K. Blaney Harold G. Caldwell Brann Williams Caldwell
& Sheetz Counsel for Appellants
S. O'Scannlain Solicitor of Labor Jennifer S. Brand
Associate Solicitor Paul L. Frieden Counsel for Appellate
Litigation, Rachel Gold Berg Senior Attorney United States
Department of Labor Division of Fair Labor Standards Counsel
Before: SMITH, Chief Judge, JORDAN, and RENDELL,
JORDAN, CIRCUIT JUDGE.
case presents a matter of first impression: whether, within
the meaning of the Fair Labor Standards Act (the
"FLSA" or "Act"), 29 U.S.C. § 203
et. seq., an employer must treat bonuses provided by
third parties as "remuneration for employment" when
calculating employees' overtime rate of pay.
the FLSA's overtime provisions, id. § 207,
employers must pay employees one-and-a-half times their
"regular rate" of pay for all hours worked above a
forty-hour work week. 29 U.S.C. § 207(a).
"[R]egular rate" is defined as including "all
remuneration for employment paid to, or on behalf of, the
employee," subject to eight enumerated exemptions.
Id. § 207(e)(1)-(8). But "remuneration for
employment" is not defined in the overtime provisions or
elsewhere in the Act.
Department of Labor, despite decades of enforcing the FLSA,
has only recently discovered in that 80-year-old statute a
basis for asserting that employers are bound to include
bonuses from third parties in the regular rate of pay when
calculating overtime pay, regardless of what the employer and
employee may have agreed. This case thus asks us whether the
expectations of employers and employees are made irrelevant
by a novel statutory interpretation and a new enforcement
strategy by the Department of Labor.
District Court, agreeing with the position of the Department
of Labor, concluded that the incentive bonuses at issue here
must be included in the regular rate of pay because they are
remuneration for employment and do not qualify for any of the
statutory exemptions. We disagree that all incentive bonuses
provided by third parties are necessarily "remuneration
for employment" under the Act and therefore properly
included in the regular rate of pay when calculating overtime
pay. Instead, we hold that incentive bonuses provided by
third parties may or may not be remuneration for employment,
depending on the understanding of the employer and employee.
In this case, the factual record does not support a finding
that all of the incentive bonuses were necessarily
remuneration for employment. We will therefore affirm in
part, vacate in part, and remand in part for further
Excavating Inc. ("Bristol") is a small excavation
contractor, owned and operated by Calvin Bristol, the sole
proprietor. Talisman Energy Inc. ("Talisman") is a
large natural gas production company with active drill pads
in Pennsylvania. Bristol entered into a master service
agreement with Talisman to provide equipment, labor, and
other services at Talisman drilling sites. Due to the nature
of the business, Bristol employees at those sites put in
extensive overtime hours, working shifts of
twelve-and-one-half-hours daily for two-week periods before
having a week off.
point, Bristol employees became aware of a bonus program
sponsored by Talisman (the "Talisman Bonuses"),
which was offered to all workers at its drilling sites,
including employees of contractors. The program rewarded
employees with distinct bonuses for safety, for efficiency,
and for completion of work, the last being called the
employees asked Bristol if they, like other workers at the
sites, could receive the Talisman Bonuses. Bristol in turn
posed the question to Talisman, which said yes. Bristol then
agreed to undertake the clerical work necessary for its
employees to receive the bonuses. Talisman emailed Bristol
when workers at a particular site had earned a bonus, and
Bristol identified whether any Bristol employees were working
at that site, submitted invoices for the bonuses to Talisman
for payment, accepted bonus payments from Talisman, deducted
taxes and other costs and fees, and distributed the bonus
payments to its employees. Bristol and Talisman, however,
never added the bonus arrangement to their master service
agreement, and neither Bristol nor Talisman entered into a
formal contract with Bristol's employees with respect to
the bonuses. Of particular relevance now, Bristol did not
include the Talisman Bonuses in the regular rate of pay when
calculating overtime compensation for its employees.
auditor from the Department of Labor visited Bristol's
offices as part of a routine inspection to assure Bristol was
properly calculating overtime compensation. Following that
inspection, the auditor determined that the Talisman-paid
bonuses must be added in the calculation of the Bristol
employees' regular rate of pay. The Department of Labor
endorsed that determination and, as a consequence of
Bristol's decision to allow employees to receive the
Talisman Bonuses, the Department insisted that Bristol pay
for overtime at a higher rate. When Bristol refused, the
Department filed this suit, alleging that Bristol violated
the FLSA's overtime provisions.
parties filed cross motions for summary judgment, which the
District Court resolved in a single order, granting the
Department's motion for summary judgment and denying
Bristol's motion for summary judgment. The Court
concluded that Bristol violated the FLSA's overtime
provisions by failing to include the Talisman Bonuses in the
"regular rate" and that the violations are subject
to the statute's mandatory liquidated damages provision,
but the Court denied the Department's request for
injunctive relief. Bristol timely appealed.
appeal, Bristol continues to argue that the District Court
erred in concluding that the Talisman Bonuses should be
included in the "regular rate." Bristol contends
the bonuses were not remuneration for employment or, in the
alternative, that they qualified for a statutory exemption.
The Department of Labor responds by arguing that "[t]he
payments are indisputably remuneration for employment
… because they are payments made to Bristol's
employees that are directly tied to the hours and quality of
work that the employees performed for Bristol."
(Answering Br. at 10.) In the Department's view, all
"compensation for performing work" qualifies as
remuneration for employment (Answering Br. at 15), regardless
of whether the payment is provided by a third party, and no
statutory exemption applies to the Talisman Bonuses.
conclude that the District Court erred in determining that
all payments relating to employment, regardless of their
source, must be included in the regular rate of pay, absent a
statutory exemption. Instead, whether a payment qualifies as
remuneration for employment depends on the employer's and
employee's agreement. Under the correct legal standard,
and on the record before us, there is a genuine dispute of
material fact as to whether the efficiency and Pacesetter
bonuses are remuneration for employment, so we will vacate in
part the District Court's judgment and remand for further
consideration of those bonuses. But, we conclude that the safety
bonus is remuneration for employment and is not subject to a
statutory exemption, and thus we will affirm the District
Court's judgment as to that bonus.
Incentive Bonuses Qualify as Remuneration
for Employment Only by Agreement.
interpreting a statute, we begin, of course, with the text.
Cazun v. Att'y Gen., 856 F.3d 249, 255 (3d Cir.
2017). If the statute's text is unambiguous, our inquiry
ceases. Matal v. Tam, 137 S.Ct. 1744, 1756 (2017).
To the extent the text may have multiple meanings, we must
endeavor to discern Congress's intent. Susinno v.
Work Out World Inc., 862 F.3d 346, 348-49 (3d Cir.
the pertinent provision of the FLSA says that "the
'regular rate' at which an employee is employed shall
be deemed to include all remuneration for employment paid to,
or on behalf of, the employee," subject to certain
statutory exceptions. 29 U.S.C. § 207(e). But it does
not define "remuneration for employment" or address
payments from third parties to employees.
Department of Labor handles that silence by arguing that
"there is a presumption that remuneration in any form is
included in regular rate calculations." (Answering Br.
at 9 (citations omitted).) That argument begs the question.
To say that all remuneration for employment is included in
the "regular rate" does not answer whether a
payment, in the first place, is remuneration for
Department of Labor also seems to argue that we should treat
the Act's silence on the meaning of "remuneration
for employment" as proof that all sources of income
should be treated the same when analyzing whether a payment
qualifies as such remuneration. That argument, though,
ignores the understanding of the parties to the actual
employment agreement. The silence of the Act is better
understood as evidence that Congress took it for granted that
it was only regulating the employer-employee relationship,
not re-writing that relationship to impose the effects of
decisions made by third parties. After all, the FLSA was
drafted more than 80 years ago against a long-understood and
still true principle: employment contracts are
contracts and must be interpreted to reflect the agreement
reached by the parties. "Remuneration for
employment" should therefore be understood as being what
the employer and the employee agreed would be paid for the
is, moreover, strong support in other provisions of the FLSA
for the view that third-party payments should be viewed
differently from those made by an employer. The FLSA as
originally passed contained no reference to any payments from
third parties to employees. Fair Labor Standards Act of 1938,
ch. 676, § 1, 52 Stat. 1060-69 (1938). In 1966, though,
Congress amended the Act to allow tips received by employees
to be counted by employers in determining whether they have
fulfilled up to 50% of their minimum wage obligation. Pub. L.
No. 89-601, § 101(a), 80 Stat. 830 (1966) (adding §
203(m) to 29 U.S.C. § 203). Thus, the first time that
Congress spoke about third-party payments, it allowed
employers to count such payments - up to a point - for the
purpose of the minimum wage requirement. If such payments had
already been understood in the law to be included in
employees' wages, that amendment would have been
superfluous. The 1966 amendment indicates the sensible
legislative understanding that money given by a third party
to an employee is not automatically remuneration for
employment. As the Supreme Court observed, "[t]he Fair
Labor Standards Act is not intended to do away with
tipping" and "not every gratuity given a worker by
his employer's customer is a part of his wages[, ]"
meaning, of course, the wages used to calculate the regular
rate of pay. Williams v. Jacksonville Terminal Co.,
315 U.S. 386, 388, 404 (1942). In 1974, Congress clarified
that tips could only be counted towards the minimum wage
requirement if the "employee has been informed by the
employer." Pub. L. No. 93-259, § 13(e), 88 Stat. 65
(1974). In other words, a third-party payment - tips - would
be included in the regular rate of pay if there was an
understanding between employer and employee about the
treatment of the third-party payment.
least one of the statutory exemptions to the overtime
provisions gives further support to reading the FLSA as
treating third-party payments differently. That exemption
excludes from the regular rate of pay any discretionary
incentive bonuses paid by employers. 29 U.S.C. §
207(e)(3) (exempting "[s]ums paid in recognition of
services performed during a given period if … both the
fact that payment is to be made and the amount of the payment
are determined at the sole discretion of the employer at or
near the end of the period and not pursuant to any prior
contract, agreement, or promise causing the employee to
expect such payments regularly"). It seems unlikely that
Congress intended to exempt discretionary payments from
employers, but not such payments from customers.
guidance we have from the case law is also consistent with
that view. The Supreme Court has described the regular rate
of an employee's pay as a matter of agreement between the
employer and the employee, saying, "[t]he regular rate
by its very nature must reflect all payments which the
parties have agreed shall be received regularly during
the workweek, exclusive of overtime payments."
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