Compliance

Court Drills Company Over Bonus Pay

By Allison Czerniak, Rachel L. Schaller

Dec. 2, 2019

Bristol Excavating entered into an agreement with Talisman Energy. Talisman paid all workers on its drilling sites bonuses for safety, efficiency and completion of work.

At some point, Talisman and Bristol agreed that Bristol’s workers were eligible to receive the bonuses; however, this arrangement was never codified. The Labor Department found Bristol should have included the bonuses in workers’ regular rate of pay for purposes of overtime compensation. In rejecting this, the Third Circuit emphasized an employee’s regular rate of pay is between the employer and employee.

Then it assessed the employer’s involvement in the bonus program: (1) whether the specific requirements for receiving the payment are known by the employees in advance of their performing relevant work; (2) whether the payment is for a reasonably specific amount; (3) whether the employer’s facilitation of the payment is significantly more than serving as a pass through vehicle. In applying the test, the Third Circuit found there was not enough clarity about the requirements or amounts of the efficiency or completion of work bonuses to require Bristol to include these bonuses in overtime compensation.

However, the terms of the safety bonus were sufficiently clear. Bristol employees knew the criteria for earning the bonus and how much they would receive, and Bristol invoiced Talisman for payment of the safety bonuses on behalf of its employees.

Bristol should have included the bonuses in its employees’ regular rate of pay. Sec’y United States Dep’t of Labor v. Bristol Excavating Inc., No. 17-3663, 2019 WL 3926937 (3d Cir. Aug. 20, 2019).

IMPACT: Employers with leased employees in the Third Circuit (New Jersey, Delaware and Pennsylvania) should audit their compensation practices in light of the new test announced in this case.

Allison Czerniak is an associate with Taft Stettinius & Hollister LLP in Chicago.

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