No OT Pay Despite Misclassification: Fifth Circuit Upholds Jury Verdict

The Fifth Circuit recently upheld a jury verdict denying overtime pay – even after a court found the worker had been misclassified as an independent contractor.

The decision turned on a key FLSA requirement for overtime pay: An employer must know, or have reason to know, that overtime work was performed.

Manager Classified as an Independent Contractor Under FLSA

Jerry Merritt was an agency manager who supervised a team of insurance agents at Texas Farm Bureau.

Merritt, like all agency managers at the company, was classified as an independent contractor (IC), meaning he:

• Set his own schedule
• Chose how many hours to work each day, and
• Was not required to track or report his hours to Texas Farm Bureau.

In addition, Merritt wasn’t paid hourly. Instead, he earned commissions on policies sold and renewed. From 2016 to 2018, his annual commissions ranged from $552,000 to $627,000. 

Employer Loses Initial FLSA Overtime Ruling

In November 2019, Merritt filed a lawsuit challenging his classification and seeking unpaid overtime under the Fair Labor Standards Act (FLSA).

On summary judgment, the district court ruled Texas Farm Bureau should’ve classified Merritt as an employee and owed him at least 816 hours of overtime. The case proceeded to trial on a single issue: whether the company had actual or constructive knowledge that Merritt worked those overtime hours.

Ultimately, the jury found Merritt wasn’t entitled to overtime pay because Texas Farm Bureau lacked knowledge that he worked overtime hours.

Merritt moved to overturn the verdict, and the case went to the Fifth Circuit.

Why Appeals Court Rejected FLSA Overtime Claim

The Fifth Circuit focused on whether Texas Farm Bureau had actual or constructive knowledge that Merritt worked overtime hours. Even though he was misclassified as an independent contractor, the court said that alone wasn’t enough to establish liability. 

The deciding issue was whether the company knew or should have known he was working overtime – not simply how many hours he worked.

Overtime Work Was Allowed, Employee Argued

Merritt based his first argument on the FLSA’s definition of “employ,” which means “to suffer or permit to work.” He argued Texas Farm Bureau owed overtime pay because it allowed him to work without limiting his hours.

He also contended the company’s knowledge of his overtime work was irrelevant, since it permitted him to decide how much to work.

The court disagreed. Under Fifth Circuit precedent, employees seeking overtime pay must show the employer had actual or constructive knowledge that they were working overtime.

Did Company Have Constructive Knowledge of Overtime Hours?

Merritt next argued that the Texas Farm Bureau had constructive knowledge of his overtime work.

Constructive knowledge exists when an employer has an opportunity, through reasonable diligence, to learn that overtime work is being performed.

Merritt claimed the company met that standard because it made no effort to track his hours. In his view, the absence of a timekeeping system showed the company failed to exercise reasonable diligence.

The court rejected that argument. It emphasized that Merritt bore the burden of proving the company knew he worked overtime, and his position effectively tried to shift that responsibility to the employer.

The Fifth Circuit also noted it has never held that failing to maintain a timekeeping system, by itself, establishes constructive knowledge.

Finally, the court pointed to the company’s structure. Agency managers worked autonomously, were not paid hourly, and were not required to track their time. Under those circumstances, the court said, the company had no reason to view Merritt’s work in terms of regular hours versus overtime hours. 

The Fifth Circuit affirmed the district court’s ruling to uphold the jury verdict in the employer’s favor.

Responding to FLSA Overtime Risks

Even when a worker is later found to be misclassified as an IC, overtime liability under the FLSA still depends on whether the employer knew, or should have known, that overtime work was performed.

That standard has practical implications for how employers track and manage work hours: 

• Do not assume that autonomy or remote work eliminates overtime obligations
• Ensure timekeeping processes accurately capture all hours worked for nonexempt employees
• Use workforce management technology to identify patterns that suggest unreported or inconsistent work hours
• Train managers to recognize and report overtime work, even when it is not formally schedule, and
• Review classification decisions, but also assess whether the organization has visibility into employees’ work hours.

Merritt v. Texas Farm Bureau, No. 24-50127 (5th Cir. 2/6/26).