Withholding Final Pay Does Not Void Overtime Exemption

By Jeffrey Rhodes Jul 20, 2016
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​Withholding final wages did not result in the loss of the computer employee exemption.

A company that withheld a computer engineer's final wages to offset alleged overpayments did not lose the computer employee exemption and could seek to recover the overpayments, the 11th U.S. Circuit Court of Appeals ruled.

IBEX Engineering Services employed Todd Pioch as a computer software and hardware engineer from 2003 to 2013. IBEX hired Pioch because of his extensive computer skills and software experience. IBEX paid Pioch at an initial hourly rate of $50, which ultimately increased to $85.40 per hour. Pioch regularly worked over 40 hours a week and received his regular hourly rate, but not overtime, for the extra hours.

From 2003 to 2004, Pioch worked for IBEX in Nevada. In early 2005, IBEX offered Pioch the opportunity to work with a client, Florida Power and Light (FPL), in Juno Beach, Fla. While the offer letter explained that Pioch could receive a per diem allowance for travel to and from work, IBEX's per diem policy applied only to employees residing more than 50 miles from their workplace. After his transfer, Pioch bought a home in West Palm Beach, Fla., within 50 miles of FPL's Juno Beach facility. Yet Pioch received per diem payments from IBEX from the time of his 2005 transfer from Nevada through 2013.

In 2012, FPL conducted an audit on several engineers who were collecting per diem payments, including Pioch. The FPL audit raised concerns about Pioch's per diem payments from 2005 through 2009—a four-year period for which Pioch admitted that he listed his Nevada home (rather than his West Palm Beach home) as his permanent address.

Following his resignation from IBEX in 2013, IBEX withheld Pioch's final three weeks of pay, which totaled $13,367.20, as a result of the FPL audit and its belief that Pioch had improperly collected $147,230 in per diem payments. Pioch sued IBEX under the Fair Labor Standards Act (FLSA), asserting minimum wage and overtime claims based on the withholding of his final pay. IBEX raised as an affirmative defense that Pioch was an exempt employee under the act, and asserted state law counterclaims for fraud and unjust enrichment relating to the disputed per diem payments.

Following discovery, IBEX moved for summary judgment to dismiss Pioch's FLSA claims before trial, arguing that he was an exempt hourly computer employee. Pioch opposed IBEX's motion and moved for summary judgment against IBEX, asking the court to dismiss its counterclaim. Pioch also filed a motion for partial summary judgment in his favor to award him $13,367.20 in wages for his final three weeks of work. The district court dismissed Pioch's claims, holding that Pioch was exempt from FLSA coverage as a matter of law. The district court also dismissed IBEX's unjust enrichment counterclaim, holding that it failed because Pioch's per diem payments were considered wages that an employer could not recover in an FLSA action.

On appeal, the 11th Circuit upheld the dismissal of Pioch's overtime claim, finding that he was an exempt hourly computer employee under the FLSA despite the withholding of his final wages. The 11th Circuit reasoned that the FLSA should not be used as a vehicle for litigating breach-of-contract disputes, and that Pioch's exempt status took him outside the minimum-wage protections of the FLSA. (These protections prevent deductions from nonexempt employees' pay that reduce their pay below the FLSA's minimum wage.)

The 11th Circuit also found that IBEX's counterclaims were not barred by case law that restricts employers from seeking to recover paid wages in an FLSA action. Because the per diem payments were in addition to earned wages, and because Pioch was exempt from the FLSA's requirements, the counterclaims could continue. Pioch also sought dismissal of the counterclaims based on Florida's two-year statute of limitations for wage claims, but the 11th Circuit left it to the district court to decide whether that statute applied to the counterclaims.

Pioch v. IBEX Engineering Services, 11th Cir., No. 15-10845 (June 14, 2016).

Professional Pointer: Employers face challenges in seeking to recover overpaid wages or benefits. In many instances, withholding final wages can violate the FLSA or state wage-payment laws. Nevertheless, employers can often recover overpayments when the employee is exempt from the FLSA and the payments are markedly different from or greater than the employee's earned wages.

Jeffrey Rhodes is an attorney with Doumar Martin in Arlington, Va.

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