Under the new FLSA rules (August 2004), exempt employees who work beyond forty hours or whatever their “regular week” is deemed to be may be given compensatory time, although there is no legal requirement to do so.  Non-exempt workers, however, must receive overtime in wage form and cannot be granted compensatory time, except under very strict and narrowly defined circumstances.

This principle has been tested in a recent federal lawsuit involving a major New York City law firm. In a recent settlement, the law firm of Schulte Roth & Zabel LLP has agreed to pay back wages and settle a class action filed by technical support employees who claimed they were not being paid overtime, but rather were given compensatory time.  The case is entitled McKenzie v. Schulte Roth & Zabel LLP, filed in the Southern District of New York.  The putative class encompassed forty-five desktop support technicians and under the draconian New York State statute of limitations, the period of recovery stretched from 2005-2011.

The suit’s theory was that establishment of banks of compensatory time violated the law. The settlement monies would be for those hours that were recorded as comp time.  There was little doubt that the employee (and other class members) was non-exempt as he performed work such as installing and troubleshooting computers and similar technical duties.  There are a host of cases holding such positions are non-exempt, not fitting either the professional or administrative exemptions.

The irony with private-employer compensatory time “banks” is that, often, employees would prefer paid time off to receiving cash overtime, which is (obviously) subject to deductions for taxes, etc.  No one usually complains about such arrangements, but it only takes one, as they say.  If a single employee complains to the DOL or files a lawsuit, then all “similarly situated” employees will be joined.  It will not be a defense to contend that “everybody liked it.”  The other danger is that this violation may expose a company’s other compensation practices (e.g. exemption classifications) to scrutiny and/or attack.