Costly FLSA Mistake: Appeals Court Upholds $22M Verdict in Wage Dispute

The Third Circuit recently affirmed a jury verdict awarding more than $22 million in back wages to 11,780 employees at a Pennsylvania battery manufacturer.

In a nutshell, here’s the lesson from this FLSA dispute: Employers must pay workers for actual time spent completing activities – not a “reasonable time” to get tasks done.

At face value, that might sound like a given — but a small detail veered things way off course. Here’s what went wrong. 

Donning and Doffing of PPE

East Penn Manufacturing Company manufactures lead acid batteries and a variety of related components.

Lead exposure is a known hazard associated with battery manufacturing. Because of this, East Penn required most nonexempt employees to follow workplace safety measures. 

Relevant here, workers had to wear uniforms and other personal protective equipment (PPE) during shifts and shower at the end of shifts, so they spent time donning and doffing the PPE.

DOL Launches FLSA Investigation, Files Lawsuit

In 2016, a Department of Labor (DOL) investigation revealed that East Penn wasn’t paying nonexempt employees for all the time spent changing into uniforms at the start of their shifts or for changing and showering at the end. The DOL also claimed this unpaid time led to overtime violations.

In the DOL’s view, this alleged pay shortage amounted to violations of the Fair Labor Standards Act (FLSA). The agency filed a lawsuit against East Penn.

A federal court in Pennsylvania granted summary judgment to the DOL, finding that changing and showering were “integral and indispensable” to the employees’ principal activities.

Then in 2023, a jury awarded $22.25 million in back wages to the affected workers. The verdict was the largest jury trial award for FLSA violations ever obtained by the DOL, the agency announced. 

However, the district court declined to award liquidated damages.

East Penn appealed the decision, and the DOL cross-appealed the denial of liquidated damages.

Employer Paid for ‘Grace Periods’ to Reduce Lollygagging

When the case reached the Third Circuit, East Penn argued that the lower court and the jury made the wrong call. The company said there was no FLSA violation because it had been paying workers to shower and change since 2003. 

Specifically, East Penn explained that in 2003, it started giving workers a five-minute “grace period” at the start of each shift to dress and get to their workstations, plus five minutes at the end to undress and shower. Then in 2016, it doubled the post-shift “grace period” to 10 minutes. 

But the company didn’t record how much time workers actually spent changing and showering, East Penn acknowledged. Even so, it argued, focusing on actual time spent showering and changing “would reward employees for dragging their feet or tending to personal matters.”

But the court was not swayed, explaining that actual time was what mattered for FLSA compliance. For example, in Smiley v. E.I. Dupont De Nemours and Co., the Third Circuit pointed out that the FLSA requires employers “to pay employees for all hours worked.” (Emphasis added.)

As to the concern about rewarding employees for “dragging their feet,” the appeals court said that East Penn could discipline or terminate employees who lollygag on the job, but not withhold their compensation.

The Third Circuit also held that employers bear the burden of proving that any unpaid time is de minimis – and noted that the “jury found East Penn liable for $22.5 million of unpaid wages. Properly viewed in the aggregate, this sum is indeed not de minimis.” 

Finally, the Third Circuit turned to the DOL’s request for damages. 

The appeals court affirmed the decision to deny liquidated damages, concluding that East Penn had acted in good faith based on legal advice from an experienced labor and employment attorney, even though that advice was ultimately incorrect.

3 Lessons from the East Penn Case

This case shows that small mistakes can snowball into massive liabilities, but proactive strategies can help employers stay on the right side of the law.

Here are three key takeaways from the Third Circuit’s ruling:

• Use accurate time-tracking systems to ensure all compensable time is recorded. Avoid estimating or using so-called “grace periods” unless they align with employees’ actual work time, including necessary work activities like donning and doffing PPE. 
• Audit work processes to identify potentially unpaid activities. Pay especially close attention to things like nonexempt workers sending or responding to emails after hours. Even small increments of time can add up quickly over time – as this $22 million verdict shows. 
• Conduct regular compliance training for managers. For wage and hour laws, FLSA training should include info on work activities that qualify as “hours worked.” 

Sec’y, United States DOL v. East Penn Mfg. Co., Nos. 24-1046, 24-1059, 2024 U.S. App. LEXIS 32204 (3d Cir. 12/19/24).