Justices Ponder Whether FLSA Requires Pay For Warehouse Workers' Anti-Theft Screening

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By Kevin McGowan

Oct. 8 — Lawyers representing the Labor Department and an employee leasing company that operates warehouses for online retailers Oct. 8 urged the U.S. Supreme Court to rule the Fair Labor Standards Act doesn't require warehouse workers to be paid for time spent going through anti-theft security screens.

Representing Integrity Staffing Solutions Inc., which staffs warehouses fulfilling Amazon.com orders, lawyer Paul D. Clement said the post-shift security screen is “classic postliminary activity” under the Portal-to-Portal Act that isn't “integral and indispensable” to the workers' principal activities and therefore doesn't have to be compensated.

The Labor Department agreed with Integrity the anti-theft screening is indistinguishable from employee checking-out procedures, which the department long has deemed non-compensable, said Curtis E. Gannon, an assistant to the solicitor general.

The Labor Department agreed with Integrity the anti-theft screening is indistinguishable from employee checking-out procedures, which the department long has deemed non-compensable, said Curtis E. Gannon, an assistant to the solicitor general.

But Mark R. Thierman, a Reno, Nev., lawyer representing the employees, said the anti-theft screen is a “principal activity” for which the FLSA requires payment.

Employees in the two Nevada warehouses spend up to 25 minutes each day to clear anti-theft screens that are solely for the employer's benefit and required as part of their jobs, Thierman said. The security screen is a “discrete act” distinct from the clocking in or clocking out procedures that are considered non-compensable, he said.

Ninth Circuit Ruling at Issue

The justices are interpreting the Portal-to-Portal Act, a 1947 FLSA amendment that provides “activities which are preliminary to or postliminary to” an employee's “principal” activities aren't compensable under the FLSA. Supreme Court precedent holds some pre-shift and post-shift activities nevertheless must be paid if they are “integral and indispensable” to the employees' principal activities.

Integrity is challenging a U.S. Court of Appeals for the Ninth Circuit decision that Integrity employees at Nevada warehouses that fulfill Amazon.com orders may have FLSA claims for time spent going through post-shift security screens (713 F.3d 525, 20 WH Cases2d 937 (9th Cir. 2013)).

Reversing a district court's dismissal of the suit, the Ninth Circuit said because the anti-theft screen was required of all warehouse employees and conducted solely for the employer's benefit, it could be found “integral and indispensable” to the employees' principal activities of packing and shipping merchandise to Amazon.com customers.

The justices in March granted Integrity's petition for review.

A court decision requiring employers to pay workers for time spent in routine post-shift security screens would create uncertainty over long-established practices and open the floodgates to new litigation, said Edward Brill of Proskauer Rose in New York, who submitted an amicus brief for the Retail Litigation Center, the U.S. Chamber of Commerce and other employer groups.

Employee theft costs an estimated $16 billion annually in the retail industry, Brill told Bloomberg BNA Oct. 8. Routine security measures to prevent employee theft benefit not just employers, but consumers and the general public, he said.

Anti-Theft Processes Discussed

At the oral argument, Justice Elena Kagan pressed Clement to explain how the warehouse workers' security screen differs from the hypothetical cases of a cashier, bank teller or casino dealer who needs to close out the register or balance accounts before leaving work. All three post-work processes have anti-theft purposes benefiting the employer, Kagan said.

Those hypothetical cases present a “close question,” because an employee's “winding down period” might be FLSA-compensable, said Clement, a former U.S. solicitor general now with Bancroft PLLC in Washington.

Couldn't you just say closing down the cash register is part of the job, Justice Antonin Scalia asked. “But getting yourself inspected as you leave the place of business is not part of the job,” he said.

“You could definitely say that,” Clement replied. The warehouse post-shift security screen is “part of the egress process” and therefore a non-compensable postliminary activity, he said.

What if employees must spend 20 to 30 minutes clearing security to serve the employer's anti-theft protection purpose, Justice Anthony Kennedy asked. “Then it seems to me to be the same” as the cashier or casino dealer case, Kennedy said.

The time employees may spend after leaving their primary work stations isn't relevant to the FLSA inquiry, Clement replied. But Kagan questioned whether the FLSA compensation issue should turn on where the anti-theft protection process occurs. “That seems not particularly sensible,” she said.

What if employees must spend 20 to 30 minutes clearing security to serve the employer's anti-theft protection purpose, Justice Anthony Kennedy asked. “Then it seems to me to be the same” as the cashier or casino dealer case, Kennedy said.

Justice Ruth Bader Ginsburg said the Integrity employees allege the security screen can take 25 minutes because the employer hasn't hired enough security checkers. Is it irrelevant to the FLSA inquiry that employee time could be shortened if the employer made other choices, she asked.

The “pure length of time of something” doesn't take an activity out of the postliminary activity category, Clement replied.

The Integrity employees' case is “a particularly bad candidate” to draw that kind of distinction because “it's not a uniform 25 minutes” for all employees going through security, Clement said. There's no difference between the varying times employees may spend going through the security screen and the varying times employees may have to wait to punch a time clock, which the Portal-to-Portal Act makes non-compensable, Clement said.

Benefit to Employer Not the Test

Isn't a “principal activity” under the FLSA anything that benefits the employer, asked Justice Sonia Sotomayor. Clement said “no,” explaining that while “work” under the FLSA may include anything that benefits the employer, the “principal activities” standard is “a separate and more demanding” test under the Portal-to-Portal Act.

Postliminary activity such as the post-shift security screen is “presumptively non-compensable” unless it's “integral and indispensable” to employees' principal activities, Clement said.

Kennedy asked whether the alleged lengthy time to pass through security benefits the employer, given that it's less expensive for Integrity to hire fewer checkers. But Clement replied that whether time spent by the employees is for the employer's benefit is irrelevant under the Portal-to-Portal Act. Time spent in postliminary activity is non-compensable even if it's “work” and it's for the benefit of the employer, Clement said.

Sotomayor questioned how Integrity could completely take “for the benefit of the employer” out of the legal analysis. She cited Supreme Court precedent that employee time spent donning protective clothing for the employer's benefit is compensable under the FLSA.

But Clement said no court precedent provides that just because an activity benefits the employer, it's compensable under the act.

‘Integral' to Amazon's Business?

The post-shift anti-theft security screen is “integral” to Amazon because “it's a system of inventory control that betters everybody else in the business,” Kagan said.

“That's just as integral to what Amazon does and to what it requires its employees to do” as “the person who closes out the cash register, the person who closes out the bank teller operation,” Kagan said. “This is sort of a necessary part of what the folks who do all the stocking and the unshelving and shelving do at Amazon.”

But Clement disagreed, saying the alleged importance of the function doesn't make it “integral and indispensable” to the employees' principal activity of fulfilling Amazon.com orders.

Scalia again came to Clement's aid, pointing out it's also “necessary” to Amazon's business to know how many hours particular employees are working. “Yet, there's no doubt whatever, that punching in and punching out is preliminary and postliminary,” Scalia said.

The exit security screens are “the modern analogue” of the punching-out process, Clement said.

“Not only do they both come at the employer's insistence and for the employer's benefit, but they also have this process of verifying that the employers are essentially behaving in an honest way,” Clement said. “The other aspect that makes it so closely analogous is they are a logical part of the egress process. They are part of getting you from your principal work station to the exit doors at the end of the day, classically postliminary activity.”

‘Principal Activity' for Employees 

Rather than discuss the Ninth Circuit's reasoning that the post-shift security screen is an “integral and indispensable” activity and therefore compensable, Thierman argued the anti-theft screen is a “principal activity” for warehouse employees under the FLSA.

The justices need not determine whether the anti-theft screen fits within a Portal-to-Portal Act exception because it isn't “postliminary” activity but rather part of the warehouse employees' job under the continuous workday doctrine, said Thierman, of the Thierman Law Firm in Reno.

The anti-theft screening is a “principal activity” because it's required for the benefit of the employer, Thierman said. “A principal activity is something that the employer tells you to do for the benefit of the employer that's not carved out” by a Portal-to-Portal Act exception, Thierman said.

Chief Justice John Roberts and Scalia expressed skepticism about Thierman's approach. “No one's principal activity is going through security,” Roberts said. “The employer doesn't hire somebody, [saying] I need somebody to go through security. He hires them to do something else and then the employee screening is certainly not the principal [activity].”

But it's a job requirement and the employee must do it on site, Thierman replied.

The warehouse employees' “overall function is to move merchandise without losing it,” Thierman said. “If they ship it to the wrong address, if they drop it in the wrong bin and it can't be received, it's not there the next day [when] they look for that particular item in that particular bin, then they haven't done their job. And if they steal, it's the same thing.”

So “everything related somehow to the job is ‘principal' ?” Roberts asked. “I would have thought principal has to do with things that are more significantly related,” he said.

The term “principal” doesn't mean “it's overwhelmingly important,” as long as it's “one of your job tasks,” Thierman said.

Scalia reiterated that although it's important to an employer that its workers check in and check out to accurately record hours, that doesn't make those activities “principal” under the act.

Thierman acknowledged there's a “carve out” for checking in and checking out under the act, but he argued the warehouse security screen is distinct.

The anti-theft screen is “a discrete act” from checking out, and when an employee remains under the control of the employer doing what the employer requires, that's a principal activity, Thierman said.

All these FLSA rules are subject to collective bargaining, so employees subject to such screens could bargain for higher wages regarding the eight hours for which they do get paid, Roberts said.

Thierman replied that of approximately 7,000 FLSA lawsuits filed annually, only about five or six defendants in the past 10 years have been hit with security screen claims and they are mostly nonunion companies.

If an employer “tells you to do it,” that's the “linchpin” of a “principal activity” under the act, Thierman said. In this case, the employer's “last command” to the warehouse workers is to be searched and “it doesn't take two minutes, it takes 20 minutes,” Thierman said.

No ‘Carve Out' for Security Screen

The Portal-to-Portal Act established “carve outs” from the compensable workday for checking in and checking out and employees' travel time, Thierman said. But “no carve out is applicable here” for a mandatory activity that is part of the workers' principal activities, he said.

The notion that a principal activity must be “a standalone job” isn't supported by the act or relevant DOL regulations, Thierman said. Justice Samuel Alito interjected that all the tasks mentioned in the regulations are tasks an employer might pay someone to do, in contrast to going through security, which no one would pay an individual to do.

Scalia asked if the result changes if going through security only takes a minute. Thierman said a minimal amount of time wouldn't be compensable. “But we're not talking trivial here,” he said. “We're talking 20, 25 minutes. That's not de minimis. That's a whole long process. If you go through the airport, you know it.”

What's the example you found that's the closest to this that favors you, Justice Stephen Breyer asked.

The most analogous situation would be employee drug testing, Thierman replied. A DOL memorandum makes clear a mandatory drug screen, a physical exam for a truck driver and fueling a work vehicle all are compensable activities, he said. The result should be no different for a required anti-theft screen before the employee can leave, he said.

The Portal-to-Portal Act says even if an activity is required, an employer may not have to pay, Scalia said. But Thierman replied the court doesn't need to do the “postliminary” activity analysis under that act to find the security screen compensable as a principal activity.

Security Screen Is Postliminary Activity

In his rebuttal, Clement said the “linchpin” of principal activities is whether an employee is performing “work of consequence.”

Drug testing wouldn't be “any logical part of the egress process” and therefore isn't covered by the Portal-to-Portal Act, Clement said. The court “obviously can police employers that want to lard on things that have nothing to do with the egress process,” he said.

Activities such as drug testing are covered “because they're work under the FLSA” and the Portal-to-Portal Act “exceptions for postliminary and preliminary activity simply don't apply,” Clement said.

But an anti-theft screen made part of the checkout process is postliminary under the Portal-to-Portal Act, Clement said. Since it's not “integral and indispensable” to the warehouse employees' principal activities, it isn't compensable, he said.

The employees' lawyers don't want to discuss the “integral and indispensable” standard “with good reason” because “I don't think you can make not stealing indispensable to the workday,” Clement said.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the transcript of the oral argument is available at http://op.bna.com/dlrcases.nsf/r?Open=kmgn-9ppptz.