No OT Pay Despite Misclassification: Fifth Circuit Upholds Jury Verdict

Why It Matters

The ruling underscores that companies cannot rely solely on contractor classifications to avoid overtime obligations; they must maintain visibility into work hours to mitigate FLSA exposure.

Key Takeaways

• Employer must know overtime to owe pay under FLSA
• Misclassification does not create automatic overtime liability
• Burden of proof lies with employee, not employer
• No timekeeping system ≠ constructive knowledge
• Companies should implement hour-tracking for nonexempt staff

Pulse Analysis

The Fifth Circuit’s decision in Merritt v. Texas Farm Bureau sharpens the focus on the Fair Labor Standards Act’s knowledge requirement for overtime liability. While the plaintiff successfully argued that he was misclassified as an independent contractor, the court reiterated that the FLSA hinges on whether the employer actually knew, or should have known through reasonable diligence, that overtime was performed. This distinction separates the classification issue from the core overtime claim, meaning that even a corrected employee status does not automatically trigger back pay unless the knowledge element is satisfied.

Legal analysts note that the appellate panel leaned heavily on precedent requiring the employee to prove the employer’s actual or constructive knowledge. The court dismissed the argument that the absence of a time‑keeping system alone establishes constructive knowledge, emphasizing that employers are not automatically deemed negligent for lacking formal hour‑tracking if they have no reason to suspect overtime. This places the evidentiary burden squarely on workers, compelling them to present concrete records or corroborating testimony that the company was aware of excessive hours. For businesses, the takeaway is clear: without documented awareness, overtime claims are unlikely to succeed, even in the face of misclassification findings.

Practically, the ruling urges firms to reassess their workforce management practices. Implementing reliable time‑tracking software, especially for non‑exempt roles, can provide the “reasonable diligence” the courts look for when evaluating constructive knowledge. Training managers to flag irregular work patterns and conducting periodic audits of classification decisions further reduce exposure. As remote and gig‑economy arrangements expand, companies that proactively monitor hours and maintain transparent reporting structures will better navigate FLSA compliance and avoid costly litigation.