On September 2, 2020, the Court of Appeals for the Fifth Circuit held that employees bear the burden of proof on whether bonuses should have been included in the regular rate of pay for purposes of calculating overtime compensation under the Fair Labor Standards Act (“FLSA”).
The plaintiffs in Edwards v. 4JLJ, L.L.C. alleged that their employer failed to account for certain bonuses in calculating the regular rate of pay. Section 7(e) of the FLSA excludes eight categories of remuneration from the regular rate calculation, including bonus compensation if “both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.” 29 U.S.C. § 207(e)(3). The Court of Appeals, considering the statutory language as well as the interpretive regulation at 29 C.F.R. § 778.211, noted that “[f]or a bonus to be excepted from the regular rate under § 207(e), the employer must maintain discretion over whether to give the bonus and the amount given.”
In an issue of first impression, the court considered whether the plaintiffs or the employer bears the burden of proof on whether bonuses are discretionary and therefore excluded from the regular rate. The court held that the burden is on the plaintiffs. In so holding, the court contrasted the regular rate definitions in § 207(e) with the affirmative defense of exemption from the overtime requirements, the burden of proof on which rests with the employer:
Section 207(e) does not exempt employers from compliance with [the overtime pay requirement in 29 U.S.C.] § 207(a)(1); it provides instruction for compliance with § 207(a)(1), where “regular rate” is used without definition. Section 207(e) provides that definition, which is crucial for employers if they are to understand what must be included in the regular rate—in order to comply with § 207(a). It was the [e]mployees’ burden to show that they “performed work for which [they were] not properly compensated.” And to do so, they must show that [their employer] ought to have included the remuneration in question in the regular rate. Because § 207(e)(3) is merely a definitional element of the regular rate—and therefore merely a definitional element of the [e]mployees’ claim—it was their burden to show that bonuses were not discretionary according to the statute’s terms.
As the court noted, the holding is consistent with the general principle that “[i]n an FLSA dispute, plaintiffs bear the burden to prove all elements of their claims.”