Court Opinion

ID: 4080587
Source: CourtListenerOpinion
Date Created: 2016-10-07 17:00:41.956099+00
Date Added: 2024-06-11T14:32:22.466725
License: Public Domain

PRECEDENTIAL

  UNITED STATES COURT OF APPEALS
       FOR THE THIRD CIRCUIT
            _____________

                No. 14-4583
               _____________

   BOBBI-JO SMILEY; AMBER BLOW;
          KELSEY TURNER,
                       Appellants

                      v.

E.I. DUPONT DE NEMOURS AND COMPANY;
           ADECCO USA, INC.
             _____________

On Appeal from the United States District Court
    for the Middle District of Pennsylvania
     (District Court No.: 3-12-cv-02380)
 District Judge: Honorable James M. Munley
               ______________

            Argued July 14, 2016
             ______________

Before: VANASKIE, KRAUSE, and RENDELL,
             Circuit Judges

       (Opinion Filed: October 7, 2016)
Thomas M. Marrone, Esq. [ARGUED]
More Marrone
1601 Market Street
#2500
Philadelphia, PA 19103

Patricia V. Pierce, Esq.
Greenblatt Pierce Engle Funt & Flores
123 South Broad Street
Suite 2500
Philadelphia, PA 19109

      Counsel for Appellants, Bobbi-Jo Smiley, Amber Blow,
      and Kelsey Turner

David S. Fryman [ARGUED]
Ballard Spahr
1735 Market Street
51st Floor
Philadelphia, PA 19103

Amy L. Bashore
Ballard Spahr
210 Lake Drive East
Suite 200
Cherry Hill, NJ 08002

      Counsel for Appellee, E. I. du Pont de Nemours and
      Company

                             2
A. Patricia Diulus-Myers
Jackson Lewis
1001 Liberty Avenue
Suite 1000
Pittsburgh, PA 15222

Eric R. Magnus
Jackson Lewis
115 Peachtree Street, N.E.
Suite 1000
Atlanta, GA 30309

      Counsel for Appellee, Adecco USA, Inc.

Rachel Goldberg, Esq.      [ARGUED]
United States Department of Labor
Division of Fair Labor Standards
Room N2716
200 Constitution Avenue, N.W.
Washington, DC 20210

      Counsel for Amicus Curiae, Secretary, United States
      Department of Labor

                    ________________

                      OPINION
                    ________________

                             3
RENDELL, Circuit Judge.

        Plaintiffs Bobbi-Jo Smiley, Amber Blow, and Kelsey
Turner appeal the District Court’s grant of summary
judgment in favor of Appellees E.I. DuPont De Nemours &
Company and Adecco USA, Inc. (collectively, “DuPont”) on
their claims under the Fair Labor Standards Act (“FLSA”), 29
U.S.C. § 201, et seq. and Pennsylvania’s Wage Payment and
Collection Law (“WPCL”), 43 P.S. § 260.1, et seq. Plaintiffs
filed a putative collective action and class action against
DuPont, seeking overtime compensation for time they spent
donning and doffing their uniforms and protective gear and
performing “shift relief” before and after their regularly-
scheduled shifts. DuPont contended that it could offset
compensation it gave Plaintiffs for meal breaks during their
shift—for which DuPont was not required to provide
compensation under the FLSA—against such required
overtime.
        The District Court agreed with DuPont. We conclude
that the FLSA and applicable regulations, as well as our
precedent in Wheeler v. Hampton Twp., 399 F.3d 238 (3d Cir.
2005), compel the opposite result and will therefore reverse
the District Court’s grant of summary judgment and remand
for further proceedings.
                               I.

     Appellants worked twelve-hour shifts at DuPont’s
manufacturing plant in Towanda, Pennsylvania.1 In addition

      1
         DuPont directly employed Bobbi-Jo Smiley and
Amber Blow. Adecco employed hourly contract employees
at the Towanda plant, including Kelsey Turner.

                             4
to working their twelve-hour shifts, Plaintiffs had to be on-
site before and after their shifts to “don and doff” uniforms
and protective gear. DuPont also required them to participate
in “shift relief,” which involved employees from the outgoing
shift sharing information about the status of work with
incoming shift employees. The time spent donning, doffing,
and providing shift relief varied, but ranged from
approximately thirty to sixty minutes a day.

       DuPont chose to compensate Plaintiffs for meal
breaks —despite no FLSA requirement to do so—during their
      2

twelve-hour shifts.     The employee handbook set forth
DuPont’s company policy for compensating meal breaks,
stating that “[e]mployees working in areas requiring 24 hour
per day staffing and [who] are required to make shift relief
will be paid for their lunch time as part of their scheduled
work shift.” Employees who worked twelve-hour, four-shift
schedules, as did Plaintiffs in this case, were entitled to one
thirty minute paid lunch break per shift, in addition to two
non-consecutive thirty minute breaks. The paid break time
always exceeded the amount of time Plaintiffs spent donning
and doffing and providing shift relief.

        DuPont treated the compensation for meal breaks
similarly to other types of compensation given to employees.
It included the compensation given for paid meal breaks when
it calculated employees’ regular rate of pay, and meal break
time was included in employees’ paystubs as part of their
total hours worked each week.

      2
         The parties agree that Plaintiffs’ meal breaks were
bona fide breaks.

                              5
       Plaintiffs brought this putative collective action and
class action against DuPont, claiming that DuPont violated
the FLSA and WPCL by requiring Plaintiffs to work before
and after their twelve-hour shifts without paying them
overtime, i.e., time and one-half, compensation. Plaintiffs
sought to recover overtime compensation for time spent
donning and doffing their uniforms and protective gear and
performing shift relief. DuPont argued that their claims fail
because it could offset the paid breaks DuPont voluntarily
provided Plaintiffs against the unpaid donning and doffing
and shift-relief time. Plaintiffs filed a motion to conditionally
certify a FLSA collective action, which the District Court
granted. Plaintiffs’ counsel sent a notice of the FLSA class to
the prospective class members, and more than 160 workers
opted in. Following the close of discovery, DuPont filed its
motion for summary judgment.

       The District Court granted DuPont’s motion for
summary judgment, holding that the FLSA allowed DuPont
to use paid non-work time to offset the required overtime and
dismissing the lawsuit entirely.3 The District Court held that
Plaintiffs were not owed any additional compensation
because the amount of paid non-work time exceeded unpaid
work time. Although it recognized that “[t]he FLSA does not
expressly grant employers permission to use paid non-work
time to offset unpaid work time,” App. 12, the District Court
nonetheless concluded offset was not specifically prohibited
and therefore granted summary judgment in favor of DuPont.

       3
          The District Court assumed, without deciding, that
Plaintiffs’ pre- and post-shift work was compensable under
the FLSA.

                               6
       Prior to oral argument, we invited the Department of
Labor (“DOL”) to file an amicus brief to assist us in
understanding the intricacies of the important FLSA issue
presented by this case. At our request, the DOL and DuPont
each filed letter briefs further addressing how we should
analyze the issue of offsetting paid non-work time against
unpaid time worked under the FLSA. We are to give
deference to the DOL’s position and guidelines under
Skidmore v. Swift, 323 U.S. 134 (1944). See Madison v. Res.
for Human Dev., Inc., 233 F.3d 175, 186 (3d Cir. 2000)
(“[I]nformal agency interpretations in ‘opinion letters and
similar documents’ are . . . . ‘entitled to respect’ under
Skidmore v. Swift . . . but only to the extent they have the
‘power to persuade.’”) (internal footnote omitted). Under
Skidmore, “[t]he weight of [an agency’s] judgment in a
particular case will depend upon the thoroughness evident in
its consideration, the validity of its reasoning, its consistency
with earlier and later pronouncements, and all those factors
which give it power to persuade, if lacking power to control.”
Skidmore, 323 U.S. at 140.

                               II.

       The District Court had jurisdiction pursuant to 28
U.S.C. §§ 1331 and 1367(a). We have jurisdiction under 28
U.S.C. § 1291. We exercise plenary review over the District
Court’s interpretation of the FLSA and its grant of summary
judgment. Rosano v. Twp. of Teaneck, 754 F.3d 177, 184 (3d
Cir. 2014). Additionally, we note that “the FLSA must be
construed liberally in favor of employees” and “exemptions
should be construed narrowly, that is, against the employer.”
Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir.
2008).

                               7
                             II.

       To provide context for the ultimate issue before us, we
begin by reviewing the contours of the FLSA and the
circumstances in which an employer may offset compensation
already given to an employee against required overtime. 4
A. Overtime and Calculating Regular Rate Under the
FLSA

      We have noted that the FLSA has a “broad remedial
purpose.” De Asencio v. Tyson Foods, Inc., 500 F.3d 361,
373 (3d Cir. 2007). “The central aim of the Act was to

      4
          Plaintiffs’ amended complaint also alleges claims
under the WPCL. The District Court below did not evaluate
the WPCL claim, and the parties have not significantly
briefed the WPCL claim on appeal. We have recognized that
“[t]he FLSA and WPCL are parallel federal and state laws.”
De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 308 (3d Cir.
2003). However, their parallel nature does not mean that they
are identical, and material differences between the two claims
could exist. See, e.g., id. at 309–10 (“Even then, whether an
implied contract may give rise to a claim under the WPCL
has never been addressed by the Pennsylvania state courts and
will require additional testimony and proof to substantiate
beyond that required for the FLSA action.”); id. at 309 n.13
(“There are some differences in the comprehensiveness of the
federal and state remedies as well since the FLSA remedy is
only for overtime pay and the WPCL remedy is broader.”).
As the FLSA claim was the thrust of both the District Court
opinion and briefing before this Court, we express no view on
the merits of the WPCL claim.

                              8
achieve . . . certain minimum labor standards.” Mitchell v.
Robert DeMario Jewelry, Inc., 361 U.S. 288, 292 (1960).
The Act established baseline standards through “federal
minimum-wage, maximum-hour, and overtime guarantees
that cannot be modified by contract.” Genesis Healthcare
Corp. v. Symczyk, 133 S. Ct. 1523, 1527 (2013).

       Among the bedrock principles of the FLSA is the
requirement that employers pay employees for all hours
worked. 29 C.F.R. § 778.223 (“Under the Act an employee
must be compensated for all hours worked.”); see also
Ballaris v. Wacker Siltronic Corp., 370 F.3d 901, 913 (9th
Cir. 2004) (“One of the principal purposes of the FLSA is to
ensure that employees are provided appropriate compensation
for all hours worked.”) (emphasis in original). Pursuant to
the FLSA, employers cannot employ any employee “for a
workweek longer than forty hours unless such employee
receives compensation for his employment . . . at a rate not
less than one and one-half times the regular rate at which he
is employed.” 29 U.S.C. § 207(a)(1). In other words,
employers are required to compensate employees for time in
excess of forty hours with overtime compensation, which is
paid at a rate of one and one-half times the employee’s
regular rate of pay.

       The regular rate at which an employee is paid for
“straight time”—or the first forty hours of work in a week—is
integral to the issue of overtime payment under the FLSA.
The regular rate is determined by way of a calculation. It is a
“rate per hour” that “is determined by dividing [the] total
remuneration for employment (except statutory exclusions) in
any workweek by the total number of hours actually worked
by him in that workweek for which such compensation was

                              9
paid.” 29 C.F.R. § 778.109. Thus, the regular rate is a
readily definable mathematical calculation that is explicitly
controlled by the FLSA. Walling v. Youngerman-Reynolds
Hardwood Co., 325 U.S. 419, 424–25 (1945) (“Once the
parties have decided upon the amount of wages and the mode
of payment the determination of the regular rate becomes a
matter of mathematical computation, the result of which is
unaffected by any designation of a contrary ‘regular rate’ in
the wage contracts.”). As the Supreme Court has explained,
the regular rate “is not an arbitrary label chosen by the
parties; it is an actual fact,” that “by its very nature must
reflect all payments which the parties have agreed shall be
received regularly during the workweek, exclusive of
overtime payments.” Id. at 424; 29 C.F.R. § 778.108 (citing
Bay Ridge Operating Co. v. Aaron, 334 U.S. 446 (1948), and
Walling, 325 U.S. at 419). There are two components to the
calculation: (1) the dividend, which includes total
remuneration minus statutory exclusions; and (2) the divisor,
which includes all hours worked. See 29 C.F.R. § 778.109.

       The FLSA characterizes the compensation that must be
included in the dividend of the regular rate calculation
broadly. It “include[s] all remuneration for employment paid
to, or on behalf of, the employee” except the exclusions that
are listed in section 207(e)(1)-(8). 29 U.S.C. § 207(e)
(emphasis added). Further, “[o]nly the statutory exclusions
are authorized. . . . [A]ll remuneration for employment paid
which does not fall within one of these seven exclusionary
clauses must be added into the total compensation received by
the employee before his regular hourly rate of pay is [to be]
determined.” 29 C.F.R. § 778.200(c) (emphasis added). We
have recognized that “there are several exceptions to the
otherwise all-inclusive rule set forth in section 207(e),” but

                             10
the statutory exclusions “are narrowly construed, and the
employer bears the burden of establishing [that] an exemption
[applies].” Minizza v. Stone Container Corp. Corrugated
Container Div. E. Plant, 842 F.2d 1456, 1459 (3d Cir. 1988)
(internal citations omitted). Thus, although a handful of types
of compensation are statutorily excluded from the definition
of “all remuneration,” all other compensation is included in
the regular rate.

        The divisor in the regular rate calculation is comprised
of all “hours worked.” 29 C.F.R. § 778.223. “Hours worked”
includes all hours worked “under [an employee’s] contract
(express or implied) or under any applicable statute.” 29
C.F.R. § 778.315. In general, “hours worked” includes time
when an employee is required to be on duty, but it is not
limited to “active productive labor” and may include
circumstances that are not productive work time. See 29
C.F.R. § 778.223. Employers have a measure of flexibility in
determining whether otherwise non-productive work time
will be considered “hours worked” under the FLSA. For
instance, meal periods—while not necessarily productive
work time—may nevertheless be considered “hours worked”
under the Act. Id. (“Some of the hours spent by employees . .
. in meal periods . . . are regarded as working time and some
are not. . . . To the extent that those hours are regarded as
working time, payment made as compensation for these hours
obviously cannot be characterized as ‘payments not for hours
worked.’”). The decision to treat otherwise non-productive
work time as “hours worked” is fact dependent. Relevant
here, the regulations provide that “[p]reliminary and
postliminary activities and time spent in eating meals between
working hours fall into this category [of work that an
employer may compensate his employees for even though he

                              11
is not obligated to do so under the FLSA.] The agreement of
the parties to provide compensation for such hours may or
may not convert them into hours worked, depending on
whether or not it appears from all the pertinent facts that the
parties have agreed to treat such time as hours worked.” 29
C.F.R. § 778.320.

        Thus, if the time at issue is considered hours worked
under the Act, the corresponding compensation is included in
the regular rate of pay. 29 C.F.R. § 778.223. Whether or not
the time is considered hours worked under the Act, however,
if the time is regarded by the parties as working time, “the
payment is nevertheless included in the regular rate of pay
unless it qualifies for exclusion from the regular rate as one of
a type of ‘payments made for occasional periods when no
work is performed due to failure of the employer to provide
sufficient work, or other similar cause’ as discussed in §
778.218 or is excludable on some other basis under section
7(e)(2).”5 Id.

       5
         The regulations appear somewhat inconsistent as to
whether payments made for meal breaks may be excluded
from the regular rate pursuant to the exception listed at
section 207(e)(2). One part of the regulations states that the
exclusion described in section 207(e)(2) “deals with the type
of absences which are infrequent or sporadic or unpredictable.
It has no relation to regular ‘absences’ such as lunch periods.”
29 C.F.R. § 778.218.           Another section, 29 C.F.R. §
778.320(b), makes clear that when there is an agreement to
treat compensation given for meal breaks not as “hours
worked,” the compensation is excluded from the regular rate
under section 207(e)(2). Whether compensation for meal
breaks is excludable from the regular rate pursuant to section

                               12
        B. Permissible Offsetting Under the FLSA

       The FLSA explicitly states when an employer may use
certain compensation already given to an employee as a credit
against its overtime liability owed to that employee under the
Act. Offsetting with already-disbursed compensation against
incurred overtime is discussed in section 207(h), which states:

       (1) Except as provided in paragraph (2), sums
       excluded from the regular rate pursuant to
       subsection (e) shall not be creditable toward
       wages required under section 6 or overtime
       compensation required under this section.

       (2) Extra compensation paid as described in
       paragraphs (5), (6), and (7) of subsection (e) of
       this section shall be creditable toward overtime
       compensation payable pursuant to this section.

29 U.S.C. § 207(h)(1)-(2) (emphasis added). As noted above,
subsection (e) sets forth the exclusions from the regular rate.
Thus, the FLSA explicitly permits offsetting against overtime
only with certain compensation that is statutorily excluded
from the regular rate, that is, only three categories of
compensation, 6 which are “extra compensation provided by a

207(e)(2) is ultimately irrelevant in situations such as this
one, where the employer has included it in the regular rate.
        6
          The three portions of subsection (e) relevant to
offsetting are:

                              13
(5) extra compensation provided by a premium
    rate paid for certain hours worked by the
    employee in any day or workweek because
    such hours are hours worked in excess of
    eight in a day or in excess of the maximum
    workweek applicable to such employee
    under subsection (a) or in excess of the
    employee’s normal working hours or
    regular working hours, as the case may be;

(6) extra compensation provided by a premium
    rate paid for work by the employee on
    Saturdays, Sundays, holidays, or regular
    days of rest, or on the sixth or seventh day
    of the workweek, where such premium rate
    is not less than one and one-half times the
    rate established in good faith for like work
    performed in nonovertime hours on other
    days;

(7) extra compensation provided by a premium
    rate paid to the employee, in pursuance of
    an applicable employment contract or
    collective-bargaining agreement, for work
    outside of the hours established in good
    faith by the contract or agreement as the
    basic, normal, or regular workday (not
    exceeding eight hours) or workweek (not
    exceeding the maximum workweek
    applicable to such employee under
    subsection (a) of this section, where such
    premium rate is not less than one and one-

                      14
premium rate.” Id. § 207(e)(5)-(7). Unlike the compensation
addressed by the other exclusions, the three categories of
excludable compensation that qualify for the offsetting
provision at section 207(h)(2) are paid at a premium rate.
Accordingly, we have previously characterized these three
categories listed in section 207(e)(5)-(7) as “dollar-for-dollar
credit[s] for premium pay” and limited permissible employer
offsets to only those premium payments. See Wheeler v.
Hampton Twp., 399 F.3d 238, 245 (3d Cir. 2005). The
regulations also support limiting employers’ ability to offset
overtime liability. Only extra compensation that falls within
sections 207(e)(5), (6), and (7) may be creditable—“[n]o
other types of remuneration for employment may be so
credited.” See 29 C.F.R. § 778.201(c).

                              IV.

        Nothing in the FLSA authorizes the type of offsetting
DuPont advances here, where an employer seeks to credit
compensation that it included in calculating an employee’s
regular rate of pay against its overtime liability. Rather, the
statute only provides for an offset of an employer’s overtime
liability using other compensation excluded from the regular
rate pursuant to sections 207(e)(5)-(7) and paid to an
employee at a premium rate.

           half times the rate established in good faith
           by the contract or agreement for like work
           performed during such workday or
           workweek; . . . .

29 U.S.C. § 207(e)(5)-(7).

                              15
       In Wheeler, as here, the employer, Hampton
Township, had voluntarily included non-work pay—which
did not need to be included in the regular rate under the Act—
in the regular rate calculation.         It sought to offset
compensation it was required to include in the regular rate,
but did not, with compensation it voluntarily chose to include
in the regular rate. Wheeler, 399 F.3d at 243. We held that
this was not permitted. We could not find any “textual reason
to ‘credit’ the Township for including such pay in its regular
rate.” Id. at 244. We explained that “while § 207(e) protects
the Township from having to include non-work pay in the
regular rate, it does not authorize the Township now to
require such augments to be stripped out, or to take a credit
for including such augments.” Id. In essence, at the point at
which compensation is included in the regular rate (regardless
of whether the Act required it be included), an employer may
not use that compensation to offset other compensation owed
under the Act. We determined that “[w]here a credit is
allowed, the statute says so.” Id. at 245. The Township was
not entitled to a credit under the explicit offset contemplated
by section 207(h), so we concluded that the FLSA did not
permit the offset. Id. (“The Township seeks a credit for
allegedly including non-work pay—presumably at a non-
premium rate—in the CBA’s basic annual salary. The FLSA
does not provide for such an offset.”).

       We based our conclusion that offsetting was limited to
the type addressed by section 207(h) on our recognition that
Section 207(h) offsetting pertained only to “extra
compensation,” which is distinct from regular straight time
pay. Wheeler, 399 F.3d at 245. Indeed, “such ‘extra
compensation’ is a kind of overtime compensation, and thus

                              16
need not be added to the regular rate. Likewise, such
compensation may be credited against the Act’s required
overtime pay.” Id. Courts have widely recognized that an
employer may offset its overtime liability with accumulated
premium pay given to employees under sections 207(e)(5)-
(7). See, e.g., Singer v. City of Waco, 324 F.3d 813, 828 (5th
Cir. 2003); Kohlheim v. Glynn Cty, 915 F.2d 1473, 1481
(11th Cir. 1990). The offset created by section 207(h) is
logical because it authorizes employers to apply one type of
premium pay to offset another, both of which are excluded
from the regular rate.7 See 29 U.S.C. § 207(e). It is
undisputed that the compensation paid for meal breaks was
included in plaintiffs’ regular rate of pay, and thus could not
qualify as “extra compensation.” Accordingly, DuPont may
not avail itself of the offset provisions explicitly allowed by §
207(h)(2).

       DuPont argues that the FLSA’s failure to expressly
prohibit offsetting where the compensation used to offset is
included in the regular rate indicates that offsetting is
allowed. We disagree with DuPont’s notion that the FLSA’s
silence indicates permission. While it is true that the statute

       7
         The “premium” nature of compensation referenced in
§ 207(h)(2) is important. Indeed, at least one court has not
allowed offsetting unless the premium payment made was
one and one-half times the regular rate of pay, or equivalent
to the overtime rate. See O’Brien v. Town of Agawam, 508 F.
Supp. 2d 142, 146 (D. Mass. 2007) (“Because the payments
at issue are less than one-and-one-half times Plaintiffs’
regular rate of pay, they cannot be used to offset the Town’s
overall liability, regardless of when or how these payments
were made.”).

                               17
does not explicitly set forth this prohibition, the policy
rationales underlying the FLSA do not permit crediting
compensation used in calculating an employee’s regular rate
of pay because it would allow employers to double-count the
compensation. The DOL convincingly urges this viewpoint.
It observes that “[t]here is no authority for the proposition
that compensation already paid for hours of work can be used
as an offset and thereby be counted a second time as
statutorily required compensation for other hours of work.”
DOL Letter Br. 6. Further, “there is no reason to distinguish
between compensation for productive work time and
compensation for bona fide meal breaks.” Id. Compensation
included in, and used in calculating, the regular rate of pay is
reflective of the first forty hours worked. We agree with the
reasoning of the DOL that allowing employers to then credit
that compensation against overtime would necessarily
shortchange employees.
        The statutory scheme that limits crediting to the three
types of “extra compensation” excluded from the regular rate
against overtime obligations makes sense. “To permit
overtime premium to enter into the computation of the regular
rate would be to allow overtime premium on overtime
premium—a pyramiding that Congress could not have
intended.” Bay Ridge Operating Co. v. Aaron, 334 U.S. 446,
464 (1948). Excludable premium compensation may offset
other excludable premium compensation.               To allow
compensation included in the regular rate to offset premium-
rate pay, however, would facilitate a “pyramiding” in the
opposite direction by allowing employers to pay straight time
and overtime together.          This approach fundamentally
conflicts with the FLSA’s concern that employees be
compensated for all hours worked. As the Ninth Circuit
observed in Ballaris, “it would undermine the purpose of the

                              18
FLSA if an employer could use agreed-upon compensation
for non-work time (or work time) as a credit so as to avoid
paying compensation required by the FLSA.” Ballaris, 370
F.3d at 914.

       While Ballaris is distinguishable because the employer
in that case excluded meal break compensation when
calculating the employee’s regular rate and the parties agreed
that the meal break period was excluded from each
employee’s hours worked, its reasoning nonetheless applies
here. The Ninth Circuit concluded that “[c]rediting money
already due an employee for some other reason against the
wage he is owed is not paying that employee the
compensation to which he is entitled by statute. It is, instead,
false and deceptive ‘creative’ bookkeeping that, if tolerated,
would frustrate the goals and purposes of the FLSA.” 370
F.3d at 914 (internal footnote omitted). Here, permitting
DuPont to use pay given for straight time—and included in
the regular rate of pay—as an offset against overtime pay is
precisely the type of “creative bookkeeping” that the Ninth
Circuit cautioned against and the FLSA sought to eradicate.

        While the District Court cited Wheeler in passing, it
did not apply our holding but, instead, looked at the two
circumstances that the statute expressly states preclude
offsetting by an employer:

       First, employers cannot use paid non-work time
       to offset unpaid work time when the paid non-
       work time is excluded from the regular rate of
       pay. Second, if the parties agree to treat paid
       non-work time as “hours worked,” and this time

                              19
       is included in the regular rate of pay, the
       employer cannot offset.

App. 12. The District Court concluded that because neither
of these circumstances was present in this case, the FLSA
does not expressly prohibit an offset.          It recited the
prohibition set forth in 29 U.S.C. § 207(h)(1), which
generally bars employers from offsetting incurred overtime
liability with sums excluded from the regular rate of pay. The
District Court observed that “defendants cannot offset if the
FLSA expressly excludes plaintiffs meal periods—non-work
time—from plaintiffs’ regular rate of pay.” App. 12-13.
After reviewing section 207(e)’s list of mandatory exclusions
from the regular rate of pay, it concluded that the one
category of exclusions that was arguably implicated by the
facts, 29 U.S.C. § 207(e)(2), was not applicable because the
meal periods were not the type of absences covered by the
exclusion. “Accordingly, section 207(e)(2) does not prohibit
defendants from including plaintiffs’ meal period time in their
regular rate of pay, rendering section 207(h)’s prohibition
against an offset inapplicable.” App. 14. Thus, like DuPont,
the District Court focused on the lack of express prohibition.
In light of our holding in Wheeler that offsetting is limited to
circumstances where an employer is paying “extra
compensation” at a premium rate, we reject the District
Court’s reasoning that the absence of a direct prohibition
controls the analysis of the offset issue.

       Moreover, we do not accept the significance that the
District Court and DuPont place on two lingering issues: first,
whether the parties had an agreement to treat the breaks in
question as hours worked, and second, whether the FLSA
required DuPont to compensate the employees for the breaks

                              20
in question. With respect to the former, both the Ninth
Circuit in Ballaris and the FLSA’s implementing regulations
advance the notion that employers may not offset if there is
an agreement to treat otherwise uncompensable time as
“hours worked,” and the compensation at issue is included in
the regular rate. But inclusion in the regular rate is sufficient
for our purposes, as noted above, so the existence of an
agreement is beside the point. 8 As to the latter, 29 C.F.R §
785.19 simply states that employers are not required by the
FLSA to treat meal breaks as hours worked, but it does not
prohibit them from doing so. Indeed, section 778.320
expressly contemplates that an employer may agree to treat
non-work time, including meal breaks, as compensable hours
worked.

       The District Court relied on the Seventh Circuit’s
opinion in Barefield v. Village of Winnetka, 81 F.3d 704 (7th
Cir. 1996), and the Eleventh Circuit’s opinion in Avery v. City
of Talladega, 24 F.3d 1337 (11th Cir. 1994), in concluding
that DuPont could offset using meal break compensation.
The two opinions did not analyze the offset issue in detail, but
instead focused on compensability. The courts in both
Barefield and Avery presumed an offset was permissible and

       8
          Ultimately, the District Court rejected Plaintiffs’
argument that there was an agreement to treat the meal
periods as hours worked, stating that DuPont’s decision to
compensate for meal breaks did not convert them into hours
worked, the policy did not create a contract deeming the time
hours worked, and the meal periods were bona fide. “Ergo,
the FLSA does not expressly preclude defendants from
offsetting plaintiffs[’] unpaid donning and doffing and shift
relief time with the paid meal period time.” App. 25.

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focused on the fact that the FLSA did not require employers
to compensate employees for the bona fide meal break
periods at issue. Notably, neither opinion addresses the most
relevant provision in the FLSA on the issue of offsetting—29
U.S.C. 207(h). Given our holding in Wheeler, limiting
offsetting to “extra compensation” not included in the regular
rate, it is irrelevant whether the breaks were compensable.

                             V.

        For the reasons discussed above, we will reverse the
District Court’s decision of November 5, 2014, and remand
for further proceedings consistent with this opinion.

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