Fifth Circuit Confirms Employers Aren’t Liable for Overtime They Don’t Know About

The Fifth Circuit recently reaffirmed an important limitation on overtime liability under the Fair Labor Standards Act (FLSA): an employer is not liable for unpaid overtime unless it knew or should have known that the employee was working overtime.

This rule extends to situations where a worker was misclassified as an independent contractor, instead of an employee. Employers should take note of the Fifth Circuit’s decision and its effect on overtime hours, especially those who hire independent contractors, particularly in Texas, Louisiana and Mississippi.

Jerry Merritt worked as an Agency Manager for Texas Farm Bureau (TFB), overseeing insurance agents across multiple agencies. TFB classified Merritt as an independent contractor and paid him on commission rather than hourly wages. Merritt controlled his own schedule, decided how many hours to work, and was not required to track or report his time. TFB did not supervise his daily activities or monitor hours worked.

Merritt sued TFB under the FLSA, alleging he had been misclassified as an independent contractor and was owed unpaid overtime. The district court summarily agreed that Merritt should have been classified as an employee and that he had worked at least 816 hours of overtime. The sole issue for trial was whether TFB had notice of that overtime work.

Following jury arguments, the jury found that TFB lacked both actual and constructive knowledge of Merritt’s overtime. Merritt challenged this finding, but it was denied. The district court denied Merritt’s post‑trial motions, and the Fifth Circuit affirmed.

On appeal, the Fifth Circuit assumed that the district court correctly decided that Merritt was not an independent contractor, but an employee. Further, TFB and Merritt agreed that, throughout his employment, Merritt was paid on commission with no obligation to report hours worked.

1. Misclassification Alone Does Not Create Overtime Liability

Even though the Fifth Circuit proceeded on the assumption that Merritt was misclassified as an independent contractor, the court emphasized that FLSA overtime liability still requires proof that the employer had actual or constructive knowledge of the overtime work performed. Allowing an employee to work flexible or unlimited hours does not automatically establish employer knowledge of overtime.

2. No Timekeeping System Does Not Equal Constructive Knowledge

Merritt argued on appeal that TFB’s failure to maintain a timekeeping system amounted to constructive knowledge of his overtime. The court rejected this argument, holding that the absence of a timekeeping system does not, by itself, show a lack of reasonable diligence by the employer.

Constructive knowledge exists where an employer could have discovered overtime through reasonable diligence. Those facts were not present here: because Merritt worked independently, without direct daily supervision, and in a different location from TFB management, and because TFB did not require Merritt to track his time, nor pay him hourly, TFB had no reason to conceptualize his work in terms of overtime hours.

3. Employee Has a Duty to Notify Employer of Overtime

The Fifth Circuit also upheld the district court’s jury instruction stating that an employee has a duty to notify the employer when working extra hours. The instruction tracked the Fifth Circuit’s pattern jury instructions and Merritt did not cite any authority to support his argument that the jury charge incorrectly cited Fifth Circuit law.

Practical Takeaways for Employers

This decision provides helpful guidance for employers, particularly those with highly autonomous or commission‑based roles. Practical takeaways include: 

• Even where an employee is misclassified, overtime liability depends on proof that the employer knew or should have known about the overtime work.
• Employees who set their own schedules, work off‑site, and do not report hours make it more difficult to establish employer knowledge.
• The absence of a timekeeping system, by itself, does not automatically create constructive knowledge.
• Employers should ensure that employees understand how and when to report overtime if it occurs and remind them to notify payroll or a supervisor if overtime hours are unpaid.

Merritt v. Texas Farm Bureau confirms that FLSA overtime claims remain fact‑intensive and that misclassification alone does not guarantee liability. Employers who allow flexibility and autonomy may still successfully defend overtime claims where they lack knowledge of the work performed.

Please contact Loden Walker or any member of Phelps’ Labor and Employment team if you have questions.