Unauthorized Overtime: A Significant Problem

By now most employers have heard about the tremendous growth of lawsuits in California involving the rules which govern hours of work and the payment of wages. You may not, however, be aware that a significant number of these lawsuits involve the basic allegation that overtime hours were worked by an employee and never paid. The easiest of these claims to assert for a disgruntled employee relate to “working off the clock” or “unauthorized overtime.” It is a significant problem because the liability for attorneys’ fees and penalties can often greatly exceed the unpaid wages.

Liability can arise in multiple ways. It can be your best employee who is trying her hardest for the company and works unauthorized time after hours to get a shipment out. She may even tell her supervisor that she doesn’t expect or want to be paid for the extra effort. It can be a task-master supervisor trying to achieve maximum performance in her department with little knowledge of or little regard for overtime payment and record keeping rules. It can be a manipulative employee or former employee who takes advantage of a weak or nonexistent policy and monitoring that falsely claims to have worked hours that were not recorded.

The liability arises because employers have a duty to pay employees for all “hours worked.” “Hours worked” is defined very broadly in California, and means “the time during which an employee is subject to the control of an employer, and included all the time the employee is suffered or permitted to work, whether or not required to do so.” Work not requested but suffered or permitted is work time.

For example, an employee may voluntarily continue to work after the end of the shift. He may be a pieceworker, he may desire to finish an assigned task or he may wish to correct errors, paste work tickets or prepare time reports or other records. The reason is immaterial; the time is working time (aka “hours worked”). The employer may attempt to disclaim liability by showing a policy prohibiting unauthorized overtime and stating that it did not know the employee was working. In most cases, the attempt will not work. You have to do more than have the policy. The law imposes a duty on the employer to exercise its control and make reasonable efforts to see that the work is not performed if the employer does not want it to be performed. You cannot sit back and accept the benefits of an employee’s work without compensating for it. On the other hand, employees cannot deceptively hide the fact that they are working in order to create an overtime claim.

Employers who wish to avoid paying for unauthorized overtime must be proactive in establishing good overtime policies and practices. Employers must have a specific policy instructing employees not to work overtime without permission, and must vigorously enforce the policy with written warnings and firm sanctions including suspension and termination. Vigorous enforcement requires diligent monitoring of the employee’s hours of work and record keeping.

It is perfectly legal to require employees to obtain authorization before working overtime hours, and to counsel or discipline employees who fail to follow this policy. But denying pay for “unauthorized” overtime may well cost you far more in the long run than you will save in the short term. If the unauthorized time was worked, you must pay for the time, and use disciplinary measures to enforce overtime policies.

What do should you do when an employee informs you that he/she has worked “unauthorized” overtime? First, make sure that the employee has recorded all of his or her time and is properly paid for the time. Second, remind the employee of your policies. If overtime requires advance approval, make sure the employee understands this and is put on notice that working overtime in the future without such approval may result in discipline.

If this is a first offense, it’s okay to be diplomatic and understanding. Acknowledge the employee’s dedication, but explain that the company is committed to ensuring that everyone is paid for all of their hours, and that it’s management’s responsibility to decide whether or not overtime hours will be worked. If this continues to be a problem, you will have to follow up with a written warning or other appropriate disciplinary action to ensure that the problem does not persist.

Of course, for any of these steps to happen, someone in management has to be aware of the problem. If a supervisor is not familiar with the overtime policies or is not monitoring the hours of work, you have a problem. You cannot rely on HR or payroll to be on top of this issue. They won’t know that an employee is working overtime unless the employee’s time is properly recorded.

It is absolutely vital to train your supervisors on wage and hour law and your organization’s policies. Make sure that they understand that employees must be compensated for all hours worked. If overtime is not going to be authorized, make sure that they set realistic expectations and do not pressure employees to “just get it done” by working off the clock. Make sure that supervisors regularly check employees’ time records to ensure that all employees are properly reporting their time. Also make sure that tracking overtime and labor costs is done in a way that does not encourage supervisors to cut corners and tolerate “off the clock” work.