Here's why.

Merritt ran his role with near-total autonomy: He set his own schedule. He chose how much to work or not work. He didn't track or report hours because the company paid him on a commission (over $500k/year).

Even assuming he was an employee entitled to overtime, he still had to prove one thing:

👉 His employer knew—or should have known—he was working overtime.

A jury said no. The 5th Circuit agreed.

The key rule upon which the court relied: No knowledge = no overtime liability.

Merritt argued: "You let me work as much as I wanted."
Not enough. Flexibility ≠ knowledge.

He argued: "You didn't track my time."
Still not enough. Lack of records ≠ constructive knowledge.

He argued: "I didn't have to tell you when I was working."
Wrong. How else was the employer to know he was working.

Step back and look at the result:
Misclassification (assumed)
Significant overtime
No time records
…and the employer still wins. Because it lacked actual or constructive knowledge.

Before anyone gets the wrong idea, this case is not a green light to ignore timekeeping. It's a reminder of where the real risk lives. Most employers don't lose overtime cases because they lacked knowledge. They lose because the facts show they should have had it. That's the difference between winning and writing a check.

If you want to stay on the right side of that line, here are a few practical takeaways:

First, make it crystal clear that employees must report all time worked. Not some. Not "approved" time. All of it.

Second, train your supervisors and managers. If they see employees working late or through lunch, responding to emails after hours, or grinding through weekends, they can't just shrug and move on. That's how "we didn't know" turns into "you should have known."

Third, pay for the time that gets reported—even if it violates policy. You can discipline the violation. You can't withhold wages.

Fourth, don't build a culture that quietly discourages overtime reporting. Courts see right through that.

Fifth, and finally, be careful with autonomy. It helped this employer because the independence was real. No oversight, no visibility, no reason to track hours. But autonomy won't save you if it's just a convenient way to avoid looking too closely.

You're responsible for what you know. You're also responsible for what you should know. But you're not automatically responsible for what an employee chooses to do—on their own, without telling you, and without giving you any reason to suspect it's happening. That distinction made all the difference here.

     

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Maybe. But usually not.

Consider the current mess involving Southern Glazer's Wine & Spirits, the largest alcohol distributor in the United States. 

Federal prosecutors have charged several of its former executives in a long-running scheme to bribe a grocery-chain wine buyer in exchange for favorable product placement in stores. The alleged perks weren't subtle: prepaid gift cards, electronics, luxury travel, golf trips, and even cash. According to prosecutors, some of the payments were disguised in company records as "seminars" or marketing expenses.

The alleged conduct stretched from 2016 through 2024 and involved high-level sales leadership—vice presidents and sales directors—not just a rogue account rep.

That's not a coincidence.

When misconduct runs for years and involves multiple managers, the issue isn't just the employees. It's the environment they were operating in.

Sales cultures are especially vulnerable to this dynamic. When revenue and shelf space are the only metrics that matter, employees quickly learn what really counts—and what doesn't. If leadership celebrates results without asking too many questions about how those results were achieved, the message becomes clear: win first, worry about the rules later.

And once that message takes root, the slope gets slippery fast.

First it's bending the rules.
Then it's "creative" expense reports.
Then it's something that starts to look a lot like bribery.

Quality companies understand this risk. They don't give star salespeople or executives a pass on bad behavior just because they're hitting their numbers. In fact, the higher someone climbs in the organization, the higher the standard should be.

To be clear, the executives charged in the Southern Glazer's case are presumed innocent. The allegations still need to be proven in court. But the facts prosecutors describe—multi-year conduct, falsified records, multiple participants—are the kind of allegations that rarely happen in a vacuum.

Companies don't get bribery scandals because one salesperson wakes up and decides to break the law.

They get them because culture quietly signals that results matter more than integrity.

Compliance policies don't define a company's culture.

What leadership rewards—and ignores—does.

If your sales team believes that hitting the number will get them praised no matter how they do it, you've already planted the seeds of your next compliance crisis.

By the time the indictment arrives, the problem didn't just start. It's been fermenting for years.

     

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In Dugan v. Reservoir Restaurant Inc., a $1 deduction just cost a restaurant its entire tip credit. A federal court handed the plaintiffs (a class of servers) a summary judgment win because their employer deducted $1 per shift from their tips to cover items like silverware, pens, and similar supplies.

Here's the setup. The restaurant paid its servers the tipped minimum wage of $2.13 per hour, relying on the FLSA's tip credit to bridge the gap to the $7.25 federal minimum wage. But every shift, the restaurant also took $1 directly from the servers' tips to reimburse the business for operating supplies.

That's where things went sideways.

The FLSA allows employers to count certain "facilities" toward wages—think meals or lodging. But the law draws a bright line: employers cannot shift the ordinary costs of running the business onto employees.

Silverware? Pens? General restaurant supplies?

Those are the employer's costs.

The court had little trouble concluding that forcing servers to cover those expenses violated the FLSA's tip credit rules. And when an employer violates those rules, the consequence is severe: the tip credit disappears entirely.

That means the restaurant must now pay the servers the full minimum wage for every hour worked, not the tipped rate. Because the servers were paid only $2.13 per hour, the employer now owes $5.12 per hour in back wages—plus an equal amount in liquidated damages.

All because of a $1 deduction.

The lesson for employers of tipped workers is straightforward. If you want to take advantage of the tip credit, tipped employees must keep their tips—period, with very limited exceptions. Even small deductions tied to ordinary operating costs can blow up the entire arrangement.

Saving a dollar per shift feels awfully petty. It also isn't worth sacrificing the entire tip credit over.

     

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That's how off-the-clock cases start.

Not with an intent to steal wages, but with an innocent call for help.

In Arnold v. Marriott, a hotel employee alleges that during busy holiday seasons he and others were directed to help with conference and event setups while not clocked in — including during lunch. Supervisors allegedly observed pre-shift work and didn't ensure it was recorded. On one occasion, when he asked whether he'd be paid for responding to work texts during lunch, he was told yes — but claims he wasn't. He also alleges he raised concerns with management and nothing changed.

That's the fact pattern.

The court didn't decide who's right. It decided whether the allegations were enough to move forward. They were.

Why? Because the complaint didn't just recite legal buzzwords. It alleged specific instances of pre-shift work, lunch-break interruptions, supervisory knowledge, and a failure to correct the problem. The unlawful withholding of wages doesn't require evil intent. It only requires that an employer failed to pay an employee for time it knew or should have known employee was working. If a supervisor directs or observes off-the-clock work and the company doesn't fix it, that's more than enough to keep a wage claim alive.

There's a lesson here for every employer with nonexempt staff.

Off-the-clock exposure rarely comes from a written policy or from an intent to "screw" the employees or steal from them. It comes from culture. From operational pressure. From managers who prioritize getting the job done over getting the time recorded.

Just because it's not "on the clock" doesn't mean it didn't happen. That needs to be more than a slogan. It needs to be consistently enforced during every work shift.

Train managers that there are no "quick favors" before a shift or during lunch. No "just take care of this." If they need the work done, the employee must be paid for their time.

Make timekeeping easy. Mobile punches. Clear reporting mechanisms for missed meals or extra time. Zero retaliation for reporting pay issues.

Audit high-risk departments — events, hospitality, production, anywhere deadlines rule the day.

And when an employee complains about unpaid time? Investigate it and, when necessary, fix it. Immediately. Pay it. Document it.

Off-the-clock claims are expensive not because of one missed punch — but because of what happens after management learns about it and does nothing.

That's where liability multiplies. And where employers get burned.

     

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