Third Circuit on third-party bonuses and the "regular rate" under the FLSA

The Fair Labor Standards Act (FLSA) requires employers to pay nonexempt employees 1.5 times their "regular rate" of pay for overtime (hours over 40 worked in a work week). Sometimes, that's an easy calculation. If the employee makes $10/hr then (s)he gets $15/hr for overtime. The "regular rate," however, includes "all remuneration for employment paid to, or on behalf of, the employee" (with some exemptions).

In Sec. U.S. DOL v. Bristol Excavating, Inc., the Third Circuit issued a precedential opinion analyzing when bonuses from a third party count toward the "regular rate" for calculating overtime. Basically, Bristol contracted with a company called Talisman to provide services at drilling sites. Talisman paid Bristol employees who worked at the Talisman drilling sites bonuses for safety, efficiency, and completion of work. Because nothing is ever easy, the holding was:

Not official use.

[I]ncentive bonuses provided by third parties may or may not be remuneration for employment, depending on the understanding of the employer and employee.

Classic "it depends" response. So, what does it depend on?

The Court tells us that "a third-party payment qualifies as remuneration for employment only when the employer and employee have effectively agreed it will." This agreement may be an express contract, but it may also be an implicit agreement. The Court pointed to some signs of such an agreement:

• The course of dealing - the employee "regularly and actually received" the bonus;
• The employer "regularly and predictably relies on a bonus to induce certain behavior;"
• Direct involvement of the employer in initiating the bonus or setting its terms;
• Unannounced or discretionary third party bonuses generally do not count.

The employer simply allowing its employees to participate in a third party bonus program does not establish an implicit agreement. 

The Court summarized its holding as:

To sum up, in order for a course of dealing to result in an implied agreement to treat third-party incentive bonuses as remuneration for employment, a fact finder should consider whether the specific requirements for receiving the payment are known by the employees in advance of their performing the relevant work; whether the payment itself is for a reasonably specific amount; and whether the employer’s facilitation of the payment is significantly more than serving as a pass through vehicle. If the answer to all of those questions is yes, there should then be a holistic assessment of the level of the employer’s involvement in the third-party bonus program, to determine if it can fairly be said that the employer and employees have adopted the third-party incentive bonuses as part of their employment agreement. There may be other relevant considerations that arise from case to case, but an employer’s role in initiating, designing, and managing the incentive bonus program will likely be of high importance.