THE SIXTH CIRCUIT COURT OF APPEALS HOLDS THAT CERTAIN TRAINING TIME IS NOT COMPENSABLE UNDER THE FLSA
December 12, 2002
By Steven R. Cupp, Esq.
Many employers require employees to attend employer-sponsored training as part of the requirements of a job position. In most cases, the Wage and Hour Division of the United States Department of Labor ("DOL") takes the position that training time is compensable work time under the Fair Labor Standards Act ("FLSA"). If an employer fails to pay for compensable training time, the DOL has the authority to assess an employer up to three years of back pay liability for all employees subject to the unlawful pay practice. On November 15, 2002, however, the United States Sixth Circuit Court of Appeals issued a decision in Chao v. Tradesmen International, Inc. that rejected the Department of Labor's position regarding training time, and held that the training time at issue in the case was not compensable under the FLSA.
THE TRADESMEN CASE
Tradesmen required that employees attend an ten hour safety course that is an instructional program on general construction job site safety. The training is presented by OSHA personnel rather than by Company personnel and the Company had no input into the materials used for the program.
Job applicants learn of the training requirements during the interview process. If a job applicant presents proof of attendance to the course, the applicant is deemed immediately eligible for hire. Job applicants who have not attended the course are informed that Tradesmen requires completion of the course as a condition of hire. Applicants are told that they may be hired immediately if they commit to registering for the training within sixty days and completing the course within a reasonable time. Job applicants can attend the course at an outside instructional institution or they can attend the class sponsored by Tradesmen at its field offices.
Tradesmen presents the course in four separate 2.5 hour sessions. The classes are held in the evening and outside of regular working hours. Employees perform no work in the class and Tradesmen does not compensate the employee for the training time. If the employee does not compete the course within sixty days after being hired, the employee will not be assigned to any work and will be effectively terminated.
The DOL filed a lawsuit against Tradesmen alleging that the training time was compensable time and sought 1) unpaid compensation for a two-year period for employees who participated in the training; and 2) an injunction against Tradesmen prohibiting Tradesmen from violating the FLSA in the future.
At the trial court level, the DOL argued that Tradesmen's training did not meet the requirements of 29 CFR Section 785.27, which is the DOL regulation defining when an employee is not entitled to compensation for training. Pursuant to this regulation, training time is not compensable if it meets four criteria:
- Attendance is outside of the employee's regular working hours;
- Attendance is in fact voluntary;
- The course, lecture, or meeting is not directly related to the employee's job; and
- The employee does not perform any productive work during the attendance.
Ruling in favor of the DOL, the trial court held that Tradesmen did not meet the second criteria of the four part test because attendance at the safety training was not "voluntary in fact." The trial court relied on 29 CFR Section 785.28 which states that "attendance is not voluntary in fact if the employee is given to understand or led to believe that his present working conditions or the continuance of his employment would be adversely affected by nonattendance." Accordingly, because Tradesmen terminated employees who did not attend the course, the trial court held that attendance was not "voluntary in fact" under the DOL's regulations.
On appeal, the Sixth Circuit reversed the trial court and held that under the circumstances of this case, the training time was voluntary. The Sixth Circuit focused on the fact that the training requirement was fully disclosed to the job applicants before they were hired. The Court stated that "[we do not see why the employer should be penalized for allowing a potential employee to begin earning income while striving to meet certain job prerequisites for the job when the employer could just as easily withhold employment until successful completion of all the job requirements." The Court further stated that its holding may have been different had the training requirement not been disclosed to the applicants before they were offered the position.
PROTECTING YOUR COMPANY FROM FLSA LIABILITY
Whether training time is compensable will be determined on the unique facts of each case. The Sixth Circuit's holding, however, provides valuable guidance to help insulate employers from potential FLSA back pay liability for training time. If an employer knows in advance that an employee will be required to attend training, the employer should fully disclose to the job applicant this prerequisite to continued employment and get the employee's understanding in writing. Additionally, even if your company's training time is compensable under the FLSA, an employer can designate a lower hourly wage rate (even a minimum wage rate) for all training time, assuming the time is considered "time worked" and any applicable overtime premium is paid to the employee. Employers should likewise fully disclose to job applicants that the Company pays a lower hourly rate for training time. Taking these few small steps may protect you in the event of a DOL audit and subsequent litigation over your pay practices.
Steve Cupp is a Shareholder in the Firm's Labor Relations and Employment Law Section and resides in the Firm's Mississippi Gulf Coast office. Steve can be contacted at 228-864-3094 or you can e-mail him at scupp@watkinsludlam.com.
