The Fair Labor Standards Act provides that employers violating the Act’s overtime pay requirements are liable for the amount of unpaid overtime. In addition, such an employer may be held liable for an equal amount of liquidated damages, unless it can show that it acted in “good faith” and with “reasonable grounds for believing” that it was in compliance with the Act. Recently, the 8th U.S. Circuit Court of Appeals held that an employer’s argument that it was unaware that employees were working at more than one franchise location was insufficient to avoid the imposition of liquidated damages. Dept. of Labor v. Barbeque Ventures, LLC., No. 08-1284 (8th Cir., November 28, 2008).

Between May of 2004 and May of 2006, Barbeque Ventures and Old Market Ventures, the defendants in this case, operated five Famous Dave’s restaurants in the Omaha, Nebraska area. The individual owners of the defendants also owned other fast food restaurants in the Omaha area (Godfather’s Pizza and Popeyes Fried Chicken), a number of which had written policies prohibiting employees from working at multiple locations without prior approval. Employees of those restaurants who did work at multiple locations had work hours combined for purposes of calculating overtime pay. Famous Dave’s had no such policy during the period relevant to this case.

During that period, a number of individuals working at Famous Dave’s applied to work at locations other than the one by which they currently were employed. Some of the applications actually included Famous Dave’s as the current employer, and two of them even listed the name and contact information of the employee’s current Famous Dave’s supervisor. The Area Manager who oversaw all five restaurants testified that he visited each of the five restaurants regularly, and recognized some employees working at more than one location.

The defendant companies also engaged a third-party payroll management company to process its payrolls. Neither the employers nor the payroll company tracked whether an individual employee worked at more than one Famous Dave’s location. As a result, work hours from multiple locations were never combined for overtime purposes.

In October 2006, the Department of Labor filed a complaint on behalf of 25 Famous Dave’s employees, seeking over $90,000 in unpaid overtime, as well as liquidated damages, post-judgment interest, and injunctive relief. The court granted the DOL’s motion for summary judgment with respect to the monetary damages. Defendants appealed only the imposition of liquidated damages, arguing that they established a good faith defense, and had provided reasonable grounds for believing that they had not violated the FLSA.

The Eighth Circuit upheld the award of liquidated damages, finding that the defendants had not established the required “honest intention to ascertain and follow the dictates of the FLSA.” It went further and, in response to the defendants’ argument that they were unaware that employees worked at multiple locations, specifically stated that “lack of knowledge is not sufficient to establish good faith.” In addition, the court held that delegating the payroll function to a third-party does not rid the employer of the duty to comply with the FLSA. Because the defendants failed to show an affirmative good faith effort to comply with the FLSA, the court did not have to address the issue of whether the companies had provided reasonable grounds for believing they had not violated the Act, and upheld the imposition of liquidated damages.

This case is a clear example of the importance of an employer’s compliance with the overtime regulations of the FLSA. Misunderstanding of the law’s provisions, or an absence of willful violation is not sufficient to avoid liability. To avoid liability, an employer must affirmatively establish that he acted in good faith by attempting to ascertain the Act’s requirements, and that any subsequent violation was inadvertent. Complete documentation of work hours, well-constructed and consistently implemented pay policies, and recognition of the full reach of the FLSA’s provisions can assist in establishing such good faith.