A recent decision by the 2nd Circuit Court of Appeals demonstrates that an employer can be liable for overtime pay even if employees have been forbidden to work overtime. The case is Chao v. Gotham Registry, Inc. and can be read here.
The court examined whether an employer must pay overtime work where it has prohibited the employee from working overtime and does not want the employee to work. According to the court, "an employer’s actual or imputed knowledge that an employee is working is a necessary condition to finding the employer suffers or permits work," but this knowledge may arise after the employee has performed the work. The court also noted that simply prohibiting overtime is not sufficient. The employer should take steps to prevent overtime, such as disciplining employees who violate the no-overtime policy.
This case is unusual in that it arises in the context of a contempt order, but its reasoning will be cited in future cases. It demonstrates that employers should enforce their restrictions on overtime, perhaps through employee discipline if necessary. But once the employer is on notice that overtime was worked, this case demonstrates that the employer is taking on risk if it does not pay the overtime compensation.
