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FLSA did not allow B&B to set in-kind value of employee’s housing at what guests pay

By Lorene D. Park, J.D.

Reversing a lower court’s decision granting summary judgment against FLSA claims by a bed and breakfast (B&B) employee who alleged that she was not paid for all time worked or paid all overtime owed, the Fourth Circuit explained that the lower court erred in finding that the parties’ agreement on hours worked exempted the employer from the FLSA’s other requirements for calculating the value of in-kind compensation. The case was remanded for the lower court to assess all “pertinent facts” and determine if the parties’ agreement was reasonable and to make a finding on the reasonable cost of lodging and other in-kind benefits provided to the employee (Balbed v. Eden Park Guest House, LLC, January 25, 2018, Motz, D.).

The employee was hired by a small family-owned B&B in July 2015 to serve as innkeeper. The parties entered into a written agreement, in which the B&B paid her $800/month and provided a room, laundry, utilities, and breakfast. In exchange, she agreed to answer phones, reply to emails, make reservations, check guests in and out, serve breakfast, clean public areas and guest rooms, and manage social media. The agreement divided her schedule into three categories: seven hours per week to serve breakfast; 22 hours per week to clean rooms and common spaces; and “as necessary” to check in guests and close the B&B. Thus, the contract provided she would work 29 hours per week on the first two categories but didn’t specify the number of hours for the third category or her other tasks, such as answering phones.

FLSA suit. The employer claimed the contract required 29 hours, entitling the employee to $1107.80 per month but it compensated her more because it paid $800 per month and provided lodging worth $850 to $1800 per month. Filing suit under the FLSA, the employee challenged that lodging value and claimed that she actually worked over 100 hours nearly every week without a day off. Granting summary judgment for the employer, the district court held that the contract constituted a “reasonable agreement” under 29 C.F.R. § 785.23, which it held carved out an exception from other FLSA requirements for recordkeeping and calculating in-kind wages.

Claiming credit for lodging. Reversing, the Fourth Circuit detailed the requirements of the FLSA and its regulations. It explained that Section 203(m) provides that “wages” include cash and, under certain circumstances, “the reasonable cost… to the employer of furnishing [the] employee with board, lodging, or other facilities.” DOL regulations promulgated under Section 203(m), provide that to claim credit for lodging as wages, an employer must ensure, among other things, that the lodging is provided primarily for the benefit of the employee and that the employer maintains accurate records of the costs incurred in furnishing the lodging.

Can reach “reasonable agreement” on hours worked. Another DOL regulation, 29 C.F.R. § 785.23, sets forth rules on calculating hours worked where an employee lives on the employer’s premises. An employee is not considered to be working all the time. Because it is “difficult to determine the exact hours worked,” the regulation provides that “any reasonable agreement of the parties which takes into consideration all of the pertinent facts will be accepted.”

Employer still had to comply with 203(m). The employer contended that the FLSA regulations that govern the Section 203(m) lodging credit did not apply here because it reached a reasonable agreement under regulation Section 785.23. Disagreeing, the appeals court explained that Section 785.23 only provides a “limited exception” to the general rule that employees be compensated for all hours actually spent at work, and it allows the parties to reach a reasonable agreement about the number of hours presumptively worked when an employee lives on the employer’s premises. But that had no bearing on the obligations under Section 203(m), which the employer also had to meet because it was supplementing cash wages with in-kind compensation.

Didn’t properly calculate in-kind compensation. Here, employer’s calculation of the value of in-kind compensation did not conform to Section 203(m) because it set the value at the price it charged guests, and that improperly included the employer’s profit. The court explained that the “regulations provide only two ways to calculate the value of in-kind compensation — reasonable cost or fair value — and an employer must use whichever is less.” The reasonable cost of housing does not include profit, and “the employer may only use the fair value of housing as the amount credited toward wages if the fair value is equal to or lower than the amount the employer actually pays for the housing.” Regulations direct employers to calculate the cost by apportioning monthly mortgage, rental payments, and utility payments.

Here, the employer in this case did not even try to meet these requirements. That said, the appeals court believed that the employer could provide a reconstruction of records that the district court deems reasonable and those could be used to assess the employee’s appropriate wages. The court therefore remanded with instructions for the employer to offer the evidence required by Section 203(m) and for the court to make a finding on the reasonable cost of lodging and other in-kind benefits provided to the employee.

Must assess reasonableness of agreement. The lower court was also directed to assess all the “pertinent facts” in determining the reasonableness of the employment agreement under Section 785.23. The appeals court explained that it should consider how many hours the employee presumptively worked each day by examining whether she was “engaged to wait” or “wait[ing] to be engaged” during check-in hours. The fact of the contract suggested she had to work 29 hours at a minimum and dictated periods when she was essentially “on-call.” Under the FLSA, hours worked include time spent being engaged to wait (time spent waiting to perform tasks for the benefit of the employer).

Considering that the fact of the contract indicates that serving breakfast and cleaning rooms requires 29 hours, the lower court should also determine whether it was reasonable for the employer to require the employee to complete the additional tasks of answering phones, making reservations, replying to emails, and managing social media within the 29-hour time frame.