"Does Withholding Final Wages Create FLSA Claim?" HR Daily Advisor

November 15, 2016

Does Withholding Final Wages Create FLSA Claim?

The U.S. 11th Circuit Court of Appeals—which covers Alabama, Florida, and Georgia—recently ruled whether an hourly computer employee whose employer withheld his final 3 weeks had a minimum wage claim under the Fair Labor Standards Act (FLSA).

In an issue the court considered for the first time, the appeals court affirmed a lower court’s finding that the employee’s exempt status under Section 213(a)(17) of the FLSA didn’t “evaporate simply because the employer [withheld] a final paycheck.” Section 213(a)(17) excludes employees who meet its exemptions from coverage of the FLSA’s overtime and minimum wage requirements.

Does Not Compute

Todd Pioch worked as a nuclear engineer for Ibex Engineering Services for 10 years. During some years, he collected nearly $150,000 in per diem payments. After an audit, Ibex concluded that he wrongfully claimed the payments. In response, he quit his job, and Ibex withheld his final 3 weeks of pay.

At the time he quit, Pioch’s hourly rate of pay was $85.40. He sued Ibex, claiming he was entitled to overtime and minimum wage because he was paid nothing for his last 3 weeks of work.

The district court found that Pioch was exempt from overtime pay as a computer professional under § 213(a)(17) of the FLSA. The court ruled that his minimum wage claim was nothing more than a contractual dispute and, as such, could not be converted into an FLSA claim. Pioch appealed the decision.

The 11th Circuit agreed with the district court. After examining the stated purposes of the FLSA and whom it was crafted to protect, the 11th Circuit said: “Setting the overtime considerations aside, Mr. Pioch’s final hourly rate amounted to $3,416 for a 40-hour workweek. That weekly amount knocks the statutory minimum of $455 per week for salaried employees out of the park.” The court observed, “What Mr. Pioch is essentially trying to do is assert a state-law breach[-]of[-]contract claim, for his agreed-to hourly rate, through the FLSA.”

Noting that Pioch was paid more than $180,000 for his last year of work, the court reasoned, “Even without receiving his final three weeks of pay, Mr. Pioch’s earnings for his final year are well above the benchmark salaries contemplated for both salaried and hourly exempt computer employees under the FLSA.” Pioch v. Ibex Engineering Services, Inc., 2016 U.S. App. LEXIS 10704 (11th Cir., June 14, 2016).

Bottom Line

Employers often grapple with whether they must provide employees a final paycheck under certain circumstances. For example, some employers get heartburn issuing a final paycheck when an employee has been overpaid, stolen property, purposely caused financial losses, taken confidential information, breached a duty of loyalty, or purposely harmed the company.

Companies often think it is a lot easier to withhold money they believe is rightly theirs rather than pay an employee and then go through a lawsuit or collections to retrieve the money they just paid. In those cases, companies often think they are subject to federal and state wage laws. In other words, employers fear that they could be liable for minimum wage violations or that an employee could lose an FLSA exemption.

Although employers feel comfortable handling breach-of-contract claims when employees have committed misconduct, they are afraid they could create a wage and hour claim, which will bring to light the reasons for the violation and provide for automatic attorneys’ fees.

This case appears to provide encouragement to employers that want to withhold final paychecks from employees who earn large salaries. That said, withholding final paychecks is risky, and employers should consult with their employment attorney to avoid liability.

Reprinted with permission of the publisher, Business & Legal Resources Copyright Business & Legal Resources.

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