Who Has the Burden to Prove Whether Bonuses Should Be Included in the Regular Rate?

According to the U.S. Court of Appeals for the Fifth Circuit, the employee bears the burden, but not all the sister Circuits agree.

Under the Fair Labor Standards Act, non-exempt employees must be paid at one and one-half times their regular rate for all hours worked over 40 in a workweek. The regular rate includes “all remuneration for employment paid to, or on behalf of, the employee,” subject to eight statutory exclusions, one of which is a discretionary bonus that is “not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.” The employer must retain discretion over both the fact of payment and the amount.

In Edwards v. 4JLJ, LLC, the Fifth Circuit addressed the issue of who bears the burden of proof on whether bonuses are discretionary and therefore excluded from the regular rate, and held that the burden fell on the employee, not the employer. The Fifth Circuit acknowledged that other Circuits – the First and Third – have come to the opposite conclusion.

In the present case, there were two bonuses at issue. One was for completing each stage of a project, which was not memorialized in writing. For this one, the plaintiffs did not offer sufficient evidence that the bonus was non-discretionary. The other was a quarterly performance bonus that was memorialized in a written contract that stated that the bonus was not to be expected but earned, but also provided the criteria and pay scale for the bonus. As to this one, although the employer clearly retained discretion over the fact of payment, the criteria and pay scale demonstrated that the employer had no discretion over the amount – and thus the bonus must be included in the regular rate.

Regardless of who bears the burden of proof at trial, this case reminds employers to evaluate any bonus programs carefully in order to determine whether the bonuses must be included in the regular rate. If the employer wishes to exclude the bonus, they must assess the circumstances and language of any such bonus protocols thoughtfully.