Business & Corporate
Spring 2018

Balbed v. Eden Park Guest House, LLC: Lodging as “Wages” under the FLSA

At its most basic level, the Fair Labor Standards Act (“FLSA”) requires employers to pay their employees a minimum wage per hour worked.  When employers pay only cash, the analysis is, of course, relatively straight forward.  However, in-kind compensation can complicate the issue.  The U.S. Court of Appeals for the Fourth Circuit recently analyzed the issue in detail, at least with respect to one type of in-kind compensation, lodging.

In Balbed v. Eden Park Guest House, LLC, the employee worked as an innkeeper for Eden Park Guest House – a small, family-owned bed and breakfast located in Takoma Park, Maryland. Eden Park and Balbed signed a written employment contract in July, 2015.  Under the contract, Eden Park agreed to pay Balbed $800 per month in cash, and also to provide Balbed with other in-kind benefits, such as a room at the inn, laundry, utilities, and daily breakfast. Balbed, meanwhile, agreed to perform a list of tasks: answer phones, make reservations, serve guests breakfast, etc.  The contract set forth a daily schedule that compartmentalized some of these agreed upon tasks into three separate categories that spanned a 29 hour work week. However, this daily schedule presented two problems. First, two of the three categories of tasks specified the amount of time within which those tasks should be completed, but the third did not. Second, none of the three categories accounted for all of the additional duties that Balbed was contractually required to perform.

Six months after beginning employment, Balbed sued Eden Park for failure to pay the statutorily-mandated minimum wage and overtime, then quit her job. She claimed that she had worked more than 100 hours per week.  Eden Park argued that it paid Balbed more than the minimum wage because it not only paid $800 per month in cash, but also provided in-kind compensation, which it claimed was worth between $850 and $1800 per month.

The parties’ dispute thus turned on two factors: how much time Balbed had worked, and what she had been paid.  Federal law places the recordkeeping burden for both factors on the employer.  Eden Park had no records establishing either the time that Balbed actually worked while on their premises or the cost or value of the lodging that it provided her.

Because of the difficulties in determining how much time an employee actually spends working while living on an employer’s premises, Federal law will enforce any reasonable agreement between an employer and an employee for determining hours worked by the employee.  In this case, Eden Park claimed that the contract was a reasonable agreement, and that it had complied with the contract, so it could not be liable to Balbed.  Balbed, of course, disagreed.

The Federal appellate court could not resolve the matter, and instead sent it back to the trial court for a re-trial to determine (1) whether under all the facts and circumstances of the case, the employment contract was a reasonable agreement regarding the number of hours actually worked, and (2) whether Eden Park could prove the actual cost or fair value of the lodging and in-kind services that it provided to Balbed.

The case is significant to employers for at least two reasons.  First, it serves as an important reminder of the need to keep good records.  In the event of a dispute regarding hours worked, services provided, or the value of compensation paid, the recordkeeping burden falls on the employer.  Recordkeeping is especially important where compensation includes an in-kind component, or is otherwise non-traditional.  Maintaining records of hours worked, with employee verification if possible, is critically important in defending a case under the FLSA or similar state law.  The records should be backed up, stored, and maintained for at least a year beyond the applicable statute of limitations for any potential claim.

If an employee’s compensation will include some in-kind component, it is also critically important to be able to establish both the actual cost of that in-kind compensation to you the employer, and the fair value of that compensation.  Both must be established because Federal law only allows an employer to claim credit for the lower of the two.

Employers should also keep in mind that actual cost and fair value can both change, and so the determination should be re-visited from time to time, to ensure that total compensation meets the applicable minimum wage.  For example, where an employee’s compensation includes lodging, the cost of the lodging is arrived at by apportioning things like the mortgage payment, electric bill, and other expenses of owning the real estate.  As those costs change, so does the amount that is properly apportioned to the employee’s living quarters, and thus so does the actual cost of the in-kind compensation to the employer.

Second, Balbed demonstrates the importance of clear, complete, well-drafted agreements.  Many of the questions that caused the appellate court to send the case back for a re-trial could, and should, have been avoided in a well-drafted agreement.  Eden Park would have done well to expressly provide for, among other things, set time each week during which Balbed was free from duties of any kind, including the duty to be “on call” to check in guests or otherwise tend to guest needs.  Had the contract expressly set out the cost and fair value of the in-kind compensation, and demonstrated how each number was calculated the entire dispute likely would have been avoided.

Employee compensation is, even in straight forward cases, fraught with risk for employers who are not both careful and diligent.  Balbed confirms that the risks increase substantially when compensation includes non-cash or in-kind goods or services.