Great Fifth Circuit Decision On Exclusion Of Bonus From Regular Rate Under FLSA

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I have often blogged about the thorny issue of bonuses under the FLSA and when those bonuses must be included in the regular rate of employees for overtime purposes.  The crucial test is whether the bonus is discretionary, meaning it need not be included, or is “promised” to employees, meaning it does have to be included, thereby raising the regular rate.  A recent federal appellate court decision fleshes this principle out in an interesting manner.  The case is entitled Edwards et al. v. 4JLJ LLC and issued from the Fifth Circuit Court of Appeals.

The Court ruled that the employees i.e. the plaintiffs, must prove that the bonuses were not discretionary and therefore includible.  This is significant and is an issue of first impression.  With that said, the Court reversed a jury verdict in favor of the Company and held that the men were not properly compensated because the first bonus at issue was not discretionary and should have been figured into the regular rates of the employees for overtime.  The three Judge panel observed that the Court had never addressed the issue of which side had the burden of proof on bonus inclusion into overtime rates.

The employees had contended that two bonuses should have been included.  On the first bonus, the possible payment was promised in writing and set down with a pay scale.  On that basis, the Court ruled that these bonuses were “nondiscretionary under the FLSA, and 4JLJ ought to have included them in the regular rate.”  The Court noted that “based on the performance bonus agreement, and the complete absence of any evidence contradicting the universal applicability of the agreement, a reasonable jury could not have concluded that 4JLJ maintained discretion over the amount of performance bonuses.”

The second bonus was different.  The lower court had held that the second bonus, the one that was paid out when the next phase of a fracking operation was completed, was not includible because the workers had not proven it was non-discretionary.  The Court reasoned that the payment was not promised in writing, in any document or policy, and the workers could not show any evidence that “elucidates how employees came to expect stage bonuses, who determined the amount, when the amount was determined, whether all employees typically received such bonuses, or whether the amount ever varied.”  As the plaintiffs had not shown that the bonus was issued at a designated time for a fixed amount, the Court would not overturn the jury verdict on this issue.

The Takeaway

This is a great decision.  It starts to turn the pendulum back on the disturbing trend of over inclusion of different kinds of monies in employee regular rates.  I also applaud the shifting of the burden onto the employee plaintiffs to prove that the sums were ascertainable and promised to the employees, rather than contingent or discretionary.   There are lessons here for employers to learn.

The case is a road map…

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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