Michael Meadows v. NCR Corporation

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 21-3309 & 22-1383
MICHAEL MEADOWS,
Plaintiff-Appellee,
v.
NCR CORPORATION,
Defendant-Appellant.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 16-cv-6221 — Manish S. Shah, Judge.
____________________
ARGUED SEPTEMBER 15, 2022 — DECIDED OCTOBER 5, 2023
____________________
Before SYKES, Chief Judge, and RIPPLE and KIRSCH, Circuit
Judges.
KIRSCH, Circuit Judge. The Fair Labor Standards Act re-
quires certain employers to pay overtime. Only certain activ-
ities count toward overtime: activities integral to an em-
ployee’s job—her principal activities—count so long as an
employer has reason to know the employee is performing
those activities. On the other hand, activities merely inci-
dental to an employee’s core job responsibilities do not count.
2 Nos. 21-3309 & 22-1383
But if an employer elects—by contract, custom, or practice—
to pay for those incidental activities, the FLSA obliges it to pay
overtime for them. This appeal asks us to consider whether
the FLSA mandates overtime pay for the performance of inci-
dental activities—which an employer has chosen to remuner-
ate by custom or practice—even if the employee failed to com-
ply with the requirements for payment imposed by that cus-
tom or practice. We conclude that it does not.
I
A
NCR Corporation manufactures, sells, and supports
point-of-sale systems and ATMs. It employs thousands of cus-
tomer engineers, or CEs, to service NCR devices in the field.
Because of the nature of their work, these employees work re-
motely with minimal on-site supervision.
NCR has policies governing how CEs are paid. NCR in-
structed CEs to work only during their official shifts and pro-
hibited off-the-clock work. It also required CEs to record their
time in an electronic timekeeping system. If a CE did work
overtime—contrary to NCR guidance—the CE would be paid
for the time, but only if she recorded it.
Michael Meadows worked as a CE for NCR from 2008 to
2019. Meadows knew of NCR’s policies prohibiting overtime
and reporting requirements. But pursuant to NCR’s practice,
when Meadows did record unauthorized overtime, he was
paid for that time. This included time spent on activities he
performed before or after his shifts or during meal times, such
as reviewing work emails, determining a route, responding to
work calls, and ensuring that his van was stocked with
Nos. 21-3309 & 22-1383 3
adequate parts. But when he did not record that time, he was
not compensated.
B
Meadows sued NCR under the Fair Labor Standards Act,
29 U.S.C. § 201 et seq., and Illinois’s parallel minimum wage
law, 820 ILCS 105/1 et seq., seeking compensation for his un-
recorded overtime work. At the close of discovery, NCR
moved for summary judgment. It argued that because the ac-
tivities Meadows performed outside his normal shift were not
integral and indispensable to his work, they were not princi-
pal activities compensable under the FLSA. Second, it con-
tended that even if they were compensable, NCR did not
know that Meadows was performing those activities, so it
could not be liable.
The district court denied the motion. It concluded that
Meadows’s off-the-clock activities were not part of his core
responsibilities of servicing NCR’s devices. Thus, they were
incidental, not principal, activities. The district court ex-
plained that, under the FLSA, employers are required to com-
pensate an employee’s performance of all principal activities
(those that are “integral and indispensable” to an employee’s
job), but not incidental activities (such as commuting or oth-
erwise preparing for work) unless an exception applies. 29
U.S.C. § 254; 29 C.F.R. § 790.8(b). The court then found that
the FLSA only required NCR to pay for Meadows’s unre-
corded overtime if NCR elected to do so by contract, custom,
or practice. 29 U.S.C. § 254(b). Addressing NCR’s argument
that it did not have to compensate Meadows because it did
not know about his off-the-clock work, the district court con-
cluded that an employer’s constructive knowledge of an em-
ployee performing compensable work is enough to establish
4 Nos. 21-3309 & 22-1383
liability. Id. §§ 203(g), 207(a)(1). In sum, the district court held
that to hold NCR liable, Meadows would have to prove that
(1) NCR had a custom or practice of paying CEs for these
types of incidental activities, and (2) NCR had constructive
knowledge that Meadows performed these (compensable) ac-
tivities. The court found that there was sufficient evidence to
raise issues of material fact as to both issues. Thus, it denied
summary judgment, and the case went to trial.
After the jury found for Meadows, NCR moved for a new
trial under Federal Rule of Civil Procedure 59. It argued there
was insufficient evidence to support a finding that NCR had
a custom or practice of paying for unrecorded incidental time.
The district court denied the motion, focusing on the activities
at issue and NCR’s knowledge of such activities. It deter-
mined that NCR could not escape liability by imposing a re-
cording requirement on its custom of paying for Meadows’s
incidental activities because NCR had constructive
knowledge of those activities. The court concluded that be-
cause NCR paid for recorded activities, the jury’s verdict
awarding Meadows overtime pay for unrecorded time was
supported by the evidence.
II
NCR raises three issues on appeal. We put two of them
aside and turn to its most substantive challenge. NCR argues
that the district court erred when it concluded that NCR had
to pay overtime for unrecorded incidental activities if it com-
pensated an employee who recorded those same activities be-
cause NCR had constructive knowledge that those activities
were being performed.
Nos. 21-3309 & 22-1383 5
We review a district court’s denial of a motion for a new
trial under Rule 59 for an abuse of discretion. Avery v. City of
Milwaukee, 847 F.3d 433, 438 (7th Cir. 2017). “Embedded legal
questions are reviewed de novo.” Id.A
The district court correctly identified that while the FLSA
requires an employer to pay an employee overtime for the
performance of all principal activities, it does not require pay-
ment for incidental activities unless the employer has agreed
to pay for those activities by contract, custom, or practice. 29
U.S.C. § 254(a)−(b). As noted, upon finding that Meadows’s
activities were incidental, the district court held that Mead-
ows could prevail if he could prove that (1) NCR had a custom
or practice of paying CEs for the type of incidental activities
Meadows engaged in, and (2) NCR had constructive
knowledge that Meadows performed these (compensable) ac-
tivities.
In denying NCR’s motion for a new trial, the district court
reasoned that because NCR had a custom or practice of com-
pensating Meadows’s off-the-clock activities, NCR was re-
quired to pay Meadows for work that it knew or should have
known about. In considering NCR’s custom or policy, the dis-
trict court did not distinguish recorded from unrecorded ac-
tivities, instead focusing on the type of activities Meadows
performed. R. 346 at 10 (“The focus is on the activity at issue,
not whether the employee records his time spent on the activ-
ity.”) (emphasis in original).
The district court’s consideration of NCR’s custom or
practice was too narrow. The court only considered the kind
of activities NCR had compensated but disregarded the
6 Nos. 21-3309 & 22-1383
circumstances under which NCR compensated those activi-
ties. Consequently, it ignored the limits NCR placed on when
incidental activities would be compensated, casting aside
NCR’s requirement that an employee must record those ac-
tivities to be compensated. Thus, the district court concluded
that Meadows’s activities were compensable under the cus-
tom or policy exception solely because NCR compensates CEs
for those types of activities in general—even though NCR
would not pay a CE for such activities under these circum-
stances. In other words, the court decided that since NCR
chose to compensate these activities in one instance, it had to
compensate them in all instances. But, under the § 254(b) ex-
ception, an incidental activity is compensable only if two con-
ditions are met: the employer elected to pay for such activities
by contract, custom, or practice and the employee engaging
in such activities complied with all the requirements imposed
on her by that contract, custom, or practice.
The district court then concluded that, because Meadows’s
activities were compensable under the § 254(b) exception,
NCR’s knowledge that Meadows performed those activities
was relevant to NCR’s liability. But the court should not have
reached the knowledge issue because NCR had no custom or
practice of compensating unrecorded off-the-clock activities.
If an incidental activity is not compensable then an em-
ployer’s knowledge that an employee is performing that ac-
tivity is irrelevant. An employer who knows that an employee
is performing incidental activities owes that employee noth-
ing for those activities unless it elected to pay for them by con-
tract, custom, or practice. Accordingly, a court need not con-
sider an employer’s knowledge of an employee’s activities
until it: (1) defines the employer’s contract, custom, or prac-
tice of compensating incidental activities, which includes all
Nos. 21-3309 & 22-1383 7
conditions on compensation; and (2) finds that the contract,
custom, or practice applies in the instant case because the em-
ployee satisfied the relevant conditions—for example, by re-
cording her incidental activities.
Section 254(b) grants employers the discretion to adopt
contracts, customs, and practices for compensating employ-
ees well beyond the floor set by Congress in the FLSA’s other
provisions. This discretion allows employers to condition
payment for incidental activities on, as in this case, an em-
ployee’s recording of their time. Focusing only on the types of
activities compensated, and not the requirements of the con-
tract, custom, or policy, would turn an employer’s discretion
to pay for incidental activities into a trap, with the predictable
consequence that employers will cease paying for incidental
activities altogether.
B
Relying on Allen v. City of Chicago, 865 F.3d 936, 939 (7th
Cir. 2017), Meadows argues that a custom or practice should
not distinguish between recorded and unrecorded time be-
cause Meadows was discouraged from recording his off-the-
clock work. But that argument misses that the preliminary
step is to define the custom or practice at issue. The district
court’s understanding of what defines the custom or practice
was too narrow, and that is enough to vacate. Meadows’s fac-
tual arguments about discouragement are thus immaterial to
that legal error.
Next, Meadows contends that NCR waived its main argu-
ment by not raising it before the district court. But it is a “well
settled” rule that an appellant may “attack[] on appeal the le-
gal theory upon which the district court based its decision.”
8 Nos. 21-3309 & 22-1383
Sidney Hillman Health Ctr. of Rochester v. Abbott Labs., Inc., 782
F.3d 922, 927 (7th Cir. 2015) (quoting Hedge v. County of Tippe-
canoe, 890 F.2d 4, 8 (7th Cir. 1989)). The district court ad-
dressed NCR’s motion for a new trial on legal grounds, and
NCR can challenge the theory on which the district court
based its decision. As the district court noted in its order
denying summary judgment, NCR also argued that it would
have paid Meadows for any recorded incidental work. NCR
defended itself at trial with the same theory, arguing in clos-
ing that “every single one of NCR’s witnesses told you that
NCR never pays for unrecorded work time.” And as the dis-
trict court remarked in its post-trial order, NCR maintained
that the verdict was against the manifest weight of evidence
because if NCR had a policy of paying for incidental time, it
was only for recorded incidental time. This case was litigated
around the idea that NCR’s customary payments did not ex-
tend to unrecorded time. The district court rejected that idea
as a legal matter. Thus, NCR’s argument is preserved.
We are also mindful that, as we read the record, the district
court did not clearly articulate its view that the employer’s
conditions on payment are irrelevant to the § 254(b) analysis
until NCR moved for a new trial. It makes sense, then, that
NCR’s appeal mirrors its argument for a new trial: NCR has
consistently contended that Meadows failed to prove that
NCR has a custom or practice of paying for unrecorded inci-
dental work, as the jury instruction required. The jury instruc-
tion addressed NCR’s custom or practice as a factual matter.
NCR’s Rule 59 motion presented a fact-based argument that
the verdict was against the manifest weight of evidence be-
cause there was no evidence that NCR had a custom or prac-
tice of compensating unrecorded incidental time. The district
court denied NCR’s motion for a new trial by rejecting NCR’s
Nos. 21-3309 & 22-1383 9
arguments on mistaken legal grounds, which NCR has
properly challenged on appeal.
III
Recall that NCR made three arguments on appeal. All take
the shape of a challenge to the district court’s refusal to grant
a new trial. We have concluded that its primary argument has
legal merit and vacate and remand based on that determina-
tion. Thus, we need not consider its remaining arguments.
In sum, we hold that an employer’s knowledge of an em-
ployee’s incidental activity is immaterial when it has no obli-
gation to pay for that activity in the first instance because the
employer’s custom or practice of payment only demands
compensating employees who have satisfied the custom or
practice’s requirements—which are inextricable from the cus-
tom or practice itself. The district court erred in concluding to
the contrary and denying NCR’s motion for a new trial based
on that conclusion. NCR has not asked us for judgment as a
matter of law, only that we reverse and remand for a new
trial. Consequently, and because we are limited to the relief
NCR has sought and the error identified, we vacate the dis-
trict court’s denial of NCR’s motion for a new trial and re-
mand for reconsideration consistent with this opinion. We va-
cate, rather than reverse, because although the district court
committed legal error, it remains best positioned to evaluate
the evidence and determine whether a new trial is warranted
under the proper legal framework. See Mejia v. Cook County.,
Ill., 650 F.3d 631, 635 (7th Cir. 2011). We necessarily vacate the
fees and costs award, too. See Smart v. Local 702 Int’l Bhd. of
Elec. Workers, 573 F.3d 523, 525 (7th Cir. 2009). We entrust the
nature and extent of the proceedings on remand to the district
court’s sound discretion. And although it is technically
10 Nos. 21-3309 & 22-1383
inapplicable because we do not order a new trial, we override
Circuit Rule 36.
VACATED AND REMANDED