Day Care Liable for Unpaid Overtime, as Calculated by the DOL

By Fiona W. Ong Apr 28, 2016

A day care was actually a “preschool,” subject to the overtime requirements under the Fair Labor Standards Act (FLSA), the 8th U.S. Circuit Court of Appeals ruled. And, in light of the establishment’s record-keeping failures, the trial court appropriately relied on the secretary of Labor’s overtime pay calculations in assessing damages, according to the 8th Circuit.

The FLSA lists the kinds of enterprises that fall within its coverage, and it specifically includes “preschools” on that list. Certain employees of covered employers may be exempt from the FLSA’s minimum wage and overtime requirements, however, including teachers. For nonexempt employees, the FLSA requires employers to make and keep accurate records of hours worked and wages paid.

In the present case, the Department of Labor (DOL) brought suit against Contingent Care LLC (located in Kansas City, Mo.), Endless Possibilities LLC and Wolfgang Shields for violations of the FLSA. Shields is a 95-percent owner of Endless Possibilities, which offers custodial care and educational services to young children, and a 100-percent owner of Contingent Care, which provides employee services to Endless Possibilities. The employees provided child care, planned lessons, and taught reading and math. Their work hours were tracked and recorded on weekly time cards.

The DOL conducted an investigation of Endless Possibilities in 2005, as a result of which Endless Possibilities agreed to compensate employees for unpaid overtime and to comply with the FLSA’s overtime and record-keeping requirements going forward. In 2008, however, the DOL conducted another investigation of Endless Possibilities, along with Contingent Care, and found further overtime and record-keeping violations. The companies agreed to pay back overtime wages and comply with the FLSA. Yet, in a 2010 DOL investigation, the companies were once again found to have violated the FLSA. This time, the DOL filed suit against the companies and Shields.

At trial, the federal district court found that Endless Possibilities was a “preschool,” covered by the FLSA, because it established curricula, employed lesson plan coordinators, designated employees as teachers, advertised reading and math services, and served young children. It also found that the companies failed to comply with the FLSA’s record-keeping obligations; these failures to comply included time cards that were missing or allegedly destroyed, and available records that contained inaccurate or conflicting information. Further, the court found that the companies had inappropriately designated part of the employees’ regular hourly wages as “other pay” in order to avoid including the time worked in the calculation of overtime.

On appeal, the 8th Circuit first found that a 1999 DOL opinion letter, as well as other case law, supported the district court’s determination that Endless Possibilities qualified as a “preschool” based on its provision of educational services and custodial care.

The 8th Circuit then turned to the issue of damages, and noted that the FLSA places the record-keeping obligation on employers. Where the employer fails to keep the appropriate records, and an employee produces sufficient evidence (which may be inferred rather than specific) as to the approximate amount and extent of work, the burden then falls on the employer to come forth with evidence as to the precise amount of work performed by the employee or to negate the employee’s inferential evidence. In the present case, the 8th Circuit agreed that the companies’ records were inadequate or inaccurate. Therefore, because of the companies’ record-keeping failures, the district court was entitled to rely upon the inferential evidence offered by the secretary of Labor on the employees’ behalf.

It is also worth noting that the 8th Circuit refused to address the companies’ argument that the employees were exempt teachers because the companies had failed to raise it before the district court; in fact, they had previously argued the opposite, i.e., that the employees were not teachers. Given that, the 8th Circuit dismissed the argument as being “especially undeserving of our consideration.”

Perez v. Contingent Care LLC, 8th Cir., No. 15-1074 (April 7, 2016).

Professional Pointer: It is critically important for employers to comply with the FLSA’s record-keeping requirements, and to ensure that the records are complete and accurate.

Fiona W. Ong is an attorney with Shawe Rosenthal LLP, the Worklaw® Network member firm in Baltimore.


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