Sometimes employers struggle with whether to pay an employee for overtime hours that the employer didn’t know were being worked by the employee. As two recent court cases demonstrate, what an employer knew and when they knew it can decide whether a company is obligated to pay for overtime work.

The autonomous agency manager

Jerry Merritt supervised insurance agents in his role as an agency manager for the Texas Farm Bureau. He set his own schedule, decided how many hours he worked, and was not required to report the hours he worked to the Farm Bureau. There was little or no oversight by his employer of the work Merritt performed or the hours he worked.

After several years, Merritt sued the Farm Bureau under the Fair Labor Standards Act, claiming he was owed at least 816 hours of overtime. When his claim went to trial, the only issue to be decided was whether or not his employer had notice of his overtime work. A federal jury and appeals court both decided in favor of the Texas Farm Bureau.

Under the FLSA, employers are liable to pay for overtime if they have actual knowledge or constructive knowledge that an employee is working overtime hours. An employer has constructive knowledge of overtime work if it had the “opportunity through reasonable diligence” to learn about overtime being worked. It was Merritt’s burden to prove that the Farm Bureau knew or had reason to know he was working overtime. The Farm Bureau’s failure to have in place an adequate timekeeping system did...

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