PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT
                _____________

                    No. 17-3663
                   _____________

SECRETARY UNITED STATES DEPARTMENT OF
               LABOR

                          v.

BRISTOL EXCAVATING, INC.; CALVIN BRISTOL,
 Individually and as owner of Bristol Excavating, Inc.,
                                              Appellants
                  _______________

   On Appeal from the United States District Court
       for the Middle District of Pennsylvania
              (D.C. No. 4-16-cv-01512)
    Magistrate Judge: Hon. Karoline Mehalchick
                 _______________

                      Argued
                 September 11, 2018
 Before: SMITH, Chief Judge, JORDAN, and RENDELL,*
                    Circuit Judges

                   (Filed: August 20, 2019)
                      _______________

Casandra K. Blaney
Harold G. Caldwell [ARGUED]
Brann Williams Caldwell & Sheetz
1019 West Main Street
Troy, PA 16947
      Counsel for Appellants

Kate S. O’Scannlain
  Solicitor of Labor
Jennifer S. Brand
  Associate Solicitor
Paul L. Frieden
  Counsel for Appellate Litigation
Rachel Gold Berg [ARGUED]
  Senior Attorney
United States Department of Labor
Division of Fair Labor Standards

       *
          This case was argued before the panel of Judges
Jordan, Vanaskie, and Rendell. The Honorable Thomas I.
Vanaskie retired from the Court on January 1, 2019. The
panel was reconstituted on March 8, 2019 pursuant to I.O.P.
Chapter 12 to its present composition. Chief Judge Smith had
the same briefs and record that were before the original panel
and has read the transcript of the argument before the court on
appeal.




                              2
Room N2716
200 Constitution Avenue, NW
Washington, DC 20210
     Counsel for Appellee
                    _______________

                 OPINION OF THE COURT
                     _______________

JORDAN, Circuit Judge.

        This case presents a matter of first impression:
whether, within the meaning of the Fair Labor Standards Act
(the “FLSA” or “Act”), 29 U.S.C. § 203 et. seq., an employer
must treat bonuses provided by third parties as “remuneration
for employment” when calculating employees’ overtime rate
of pay.

       Under the FLSA’s overtime provisions, 

employers must pay employees one-and-a-half times their
“regular rate” of pay for all hours worked above a forty-hour
work week. 29 U.S.C. § 207(a). “[R]egular rate” is defined
as including “all remuneration for employment paid to, or on
behalf of, the employee,” subject to eight enumerated
exemptions. 

But “remuneration for
employment” is not defined in the overtime provisions or
elsewhere in the Act.

       The Department of Labor, despite decades of
enforcing the FLSA, has only recently discovered in that 80-
year-old statute a basis for asserting that employers are bound
to include bonuses from third parties in the regular rate of pay
when calculating overtime pay, regardless of what the




                               3
employer and employee may have agreed. This case thus
asks us whether the expectations of employers and employees
are made irrelevant by a novel statutory interpretation and a
new enforcement strategy by the Department of Labor.

       The District Court, agreeing with the position of the
Department of Labor, concluded that the incentive bonuses at
issue here must be included in the regular rate of pay because
they are remuneration for employment and do not qualify for
any of the statutory exemptions. We disagree that all
incentive bonuses provided by third parties are necessarily
“remuneration for employment” under the Act and therefore
properly included in the regular rate of pay when calculating
overtime pay. Instead, we hold that incentive bonuses
provided by third parties may or may not be remuneration for
employment, depending on the understanding of the employer
and employee. In this case, the factual record does not
support a finding that all of the incentive bonuses were
necessarily remuneration for employment. We will therefore
affirm in part, vacate in part, and remand in part for further
proceedings.

I.    BACKGROUND

       Bristol Excavating Inc. (“Bristol”) is a small
excavation contractor, owned and operated by Calvin Bristol,
the sole proprietor. Talisman Energy Inc. (“Talisman”) is a
large natural gas production company with active drill pads in
Pennsylvania. Bristol entered into a master service agreement
with Talisman to provide equipment, labor, and other services
at Talisman drilling sites. Due to the nature of the business,
Bristol employees at those sites put in extensive overtime




                              4
hours, working shifts of twelve-and-one-half-hours daily for
two-week periods before having a week off.

       At some point, Bristol employees became aware of a
bonus program sponsored by Talisman (the “Talisman
Bonuses”), which was offered to all workers at its drilling
sites, including employees of contractors. The program
rewarded employees with distinct bonuses for safety, for
efficiency, and for completion of work, the last being called
the “Pacesetter” bonus.

       Bristol’s employees asked Bristol if they, like other
workers at the sites, could receive the Talisman Bonuses.
Bristol in turn posed the question to Talisman, which said
yes. Bristol then agreed to undertake the clerical work
necessary for its employees to receive the bonuses. Talisman
emailed Bristol when workers at a particular site had earned a
bonus, and Bristol identified whether any Bristol employees
were working at that site, submitted invoices for the bonuses
to Talisman for payment, accepted bonus payments from
Talisman, deducted taxes and other costs and fees, and
distributed the bonus payments to its employees. Bristol and
Talisman, however, never added the bonus arrangement to
their master service agreement, and neither Bristol nor
Talisman entered into a formal contract with Bristol’s
employees with respect to the bonuses. Of particular
relevance now, Bristol did not include the Talisman Bonuses
in the regular rate of pay when calculating overtime
compensation for its employees.

       An auditor from the Department of Labor visited
Bristol’s offices as part of a routine inspection to assure
Bristol was properly calculating overtime compensation.




                              5
Following that inspection, the auditor determined that the
Talisman-paid bonuses must be added in the calculation of
the Bristol employees’ regular rate of pay. The Department
of Labor endorsed that determination and, as a consequence
of Bristol’s decision to allow employees to receive the
Talisman Bonuses, the Department insisted that Bristol pay
for overtime at a higher rate. When Bristol refused, the
Department filed this suit, alleging that Bristol violated the
FLSA’s overtime provisions.

        The parties filed cross motions for summary judgment,
which the District Court1 resolved in a single order, granting
the Department’s motion for summary judgment and denying
Bristol’s motion for summary judgment.2           The Court
concluded that Bristol violated the FLSA’s overtime
provisions by failing to include the Talisman Bonuses in the
“regular rate” and that the violations are subject to the
statute’s mandatory liquidated damages provision, but the


      1
          The parties consented to the jurisdiction of the
magistrate judge. See 28 U.S.C. § 636(c)(1) (Upon the
consent of the parties, a … United States magistrate judge …
may conduct any or all proceedings in a jury or nonjury civil
matter and order the entry of judgment in the case[.])
      2
            The District Court’s order declared that the
Department of Labor’s motion for summary judgment was
“granted in part” (App. at 21), but the Court resolved all of
the Department’s claims. Although injunctive relief was
denied, there was no further action to be taken, so the order
was final. Neither party argues otherwise, and the judgment
is now ripe for review.




                              6
Court denied the Department’s request for injunctive relief.
Bristol timely appealed.

II.    DISCUSSION3

        On appeal, Bristol continues to argue that the District
Court erred in concluding that the Talisman Bonuses should
be included in the “regular rate.” Bristol contends the
bonuses were not remuneration for employment or, in the
alternative, that they qualified for a statutory exemption. The
Department of Labor responds by arguing that “[t]he
payments are indisputably remuneration for employment …
because they are payments made to Bristol’s employees that
are directly tied to the hours and quality of work that the
employees performed for Bristol.” (Answering Br. at 10.) In
the Department’s view, all “compensation for performing
work” qualifies as remuneration for employment (Answering
Br. at 15), regardless of whether the payment is provided by a
third party, and no statutory exemption applies to the
Talisman Bonuses.

       We conclude that the District Court erred in
determining that all payments relating to employment,
regardless of their source, must be included in the regular rate

       3
          The District Court had jurisdiction pursuant to 28
U.S.C. §§ 1331 and 1345, as well as 29 U.S.C. § 217. We
have appellate jurisdiction under 28 U.S.C. § 1291. We
exercise plenary review over a district court’s grant of
summary judgment, and likewise over a district court’s
interpretation of the FLSA. Madison v. Res. for Human Dev.,
Inc., 

, 180 (3d Cir. 2000).




                               7
of pay, absent a statutory exemption. Instead, whether a
payment qualifies as remuneration for employment depends
on the employer’s and employee’s agreement. Under the
correct legal standard, and on the record before us, there is a
genuine dispute of material fact as to whether the efficiency
and Pacesetter bonuses are remuneration for employment, so
we will vacate in part the District Court’s judgment and
remand for further consideration of those bonuses.4 But, we
conclude that the safety bonus is remuneration for
employment and is not subject to a statutory exemption, and
thus we will affirm the District Court’s judgment as to that
bonus.

      A.     Incentive Bonuses Qualify as Remuneration
             for Employment Only by Agreement.

       When interpreting a statute, we begin, of course, with
the text. Cazun v. Att’y Gen., 

, 255 (3d Cir.
2017). If the statute’s text is unambiguous, our inquiry
ceases. Matal v. Tam, 

, 1756 (2017). To the
extent the text may have multiple meanings, we must
endeavor to discern Congress’s intent. Susinno v. Work Out
World Inc., 

, 348-49 (3d Cir. 2017).

       Here, the pertinent provision of the FLSA says that
“the ‘regular rate’ at which an employee is employed shall be
deemed to include all remuneration for employment paid to,

      4
           Because we need to remand, given that the
efficiency and Pacesetter bonuses cannot at this stage be
called remuneration for employment, we need not determine
whether those payments qualify under the statute as exempt
from inclusion in the regular rate of pay.




                              8
or on behalf of, the employee,” subject to certain statutory
exceptions. 29 U.S.C. § 207(e). But it does not define
“remuneration for employment” or address payments from
third parties to employees.

        The Department of Labor handles that silence by
arguing that “there is a presumption that remuneration in any
form is included in regular rate calculations.” (Answering Br.
at 9 (citations omitted).) That argument begs the question.
To say that all remuneration for employment is included in
the “regular rate” does not answer whether a payment, in the
first place, is remuneration for employment.5

        The Department of Labor also seems to argue that we
should treat the Act’s silence on the meaning of
“remuneration for employment” as proof that all sources of
income should be treated the same when analyzing whether a
payment qualifies as such remuneration. That argument,
though, ignores the understanding of the parties to the actual
employment agreement. The silence of the Act is better
understood as evidence that Congress took it for granted that
it was only regulating the employer–employee relationship,
not re-writing that relationship to impose the effects of
decisions made by third parties. After all, the FLSA was
drafted more than 80 years ago against a long-understood and
still true principle: employment contracts are contracts and
must be interpreted to reflect the agreement reached by the
parties. “Remuneration for employment” should therefore be

      5
           The Department is correct, however, that if a
payment qualifies as remuneration for employment there is a
presumption that such remuneration will be included in the
“regular rate.” See 

.




                              9
understood as being what the employer and the employee
agreed would be paid for the job.

        There is, moreover, strong support in other provisions
of the FLSA for the view that third-party payments should be
viewed differently from those made by an employer. The
FLSA as originally passed contained no reference to any
payments from third parties to employees. Fair Labor
Standards Act of 1938, ch. 676, § 1, 52 Stat. 1060-69 (1938).
In 1966, though, Congress amended the Act to allow tips
received by employees to be counted by employers in
determining whether they have fulfilled up to 50% of their
minimum wage obligation. Pub. L. No. 89-601, § 101(a), 80
Stat. 830 (1966) (adding § 203(m) to 29 U.S.C. § 203). Thus,
the first time that Congress spoke about third-party payments,
it allowed employers to count such payments – up to a point –
for the purpose of the minimum wage requirement. If such
payments had already been understood in the law to be
included in employees’ wages, that amendment would have
been superfluous. The 1966 amendment indicates the
sensible legislative understanding that money given by a third
party to an employee is not automatically remuneration for
employment. As the Supreme Court observed, “[t]he Fair
Labor Standards Act is not intended to do away with tipping”
and “not every gratuity given a worker by his employer’s
customer is a part of his wages[,]” meaning, of course, the
wages used to calculate the regular rate of pay. Williams v.
Jacksonville Terminal Co., 

, 388, 404 (1942). In
1974, Congress clarified that tips could only be counted
towards the minimum wage requirement if the “employee has
been informed by the employer.” Pub. L. No. 93-259,
§ 13(e), 88 Stat. 65 (1974). In other words, a third-party
payment – tips – would be included in the regular rate of pay




                             10
if there was an understanding between employer and
employee about the treatment of the third-party payment.

       At least one of the statutory exemptions to the
overtime provisions gives further support to reading the
FLSA as treating third-party payments differently. That
exemption excludes from the regular rate of pay any
discretionary incentive bonuses paid by employers. 29
U.S.C. § 207(e)(3) (exempting “[s]ums paid in recognition of
services performed during a given period if … both the fact
that payment is to be made and the amount of the payment are
determined at the sole discretion of the employer at or near
the end of the period and not pursuant to any prior contract,
agreement, or promise causing the employee to expect such
payments regularly”). It seems unlikely that Congress
intended to exempt discretionary payments from employers,
but not such payments from customers.

        The guidance we have from the case law is also
consistent with that view. The Supreme Court has described
the regular rate of an employee’s pay as a matter of
agreement between the employer and the employee, saying,
“[t]he regular rate by its very nature must reflect all payments
which the parties have agreed shall be received regularly
during the workweek, exclusive of overtime payments.”
Walling v. Youngerman-Reynolds Hardwood Co., 

, 424 (1945) (emphasis added). That common-sense view
has never before been challenged.

      Therefore, a rule that looks to the contracting parties’
understanding to determine whether a third-party payment
(even if transferred to an employee by his employer) is
remuneration for employment is the correct approach, as




                              11
opposed to the Department’s all-third-party-payments-are-
always-remuneration rule. Both contracting parties are
safeguarded by respecting their actual understanding. Money
that employers and employees have agreed – either explicitly
or implicitly – is part of regular pay cannot be funneled
through third parties to dodge overtime requirements, so
employees are protected. At the same time, employers are
protected from being on the hook every time a third party
chooses to add to an employee’s income.

        Two examples illustrate the latter point. Take the case
of a youngster on his first job. Because his father wants him
to excel and cares about the family’s reputation, he offers his
son an extra five dollars every time the boy can show he
successfully completed a certain number of assigned tasks at
work. Such a third-party payment gives an incentive to the
youngster to perform well for his employer, but, even if the
employer knew the father was providing his son with that
bonus, it would simply be wrong to say that the extra pay
should be considered remuneration for the boy’s work, unless
this was part of the employment agreement. Under the
Department’s rule, however, the employer would be forced to
include the father’s payment in the regular rate of pay,
meaning that the father could cause the employer’s labor
costs to increase, without the employer having any say in the
matter. A rule that focuses on what the parties agreed to, on
the other hand, would exclude such payments and enable the
employer to determine and limit its own labor costs. And, as
described above, nothing in the Act or the history of its
enforcement indicates that such a bonus belongs in the regular
rate of the son’s pay.




                              12
       Next, consider a car service driver. A regular
passenger tells his driver that each time the driver is on time
he will give the driver an extra ten dollars. The passenger
pays this by credit card, and the driver’s employer remits the
regularized tip to the employee, as the law requires. That
incentive bonus arrangement clearly benefits the employee,
and it arguably helps the employer too, as its customer is
happier if the driver is on time. But the mutuality of
satisfaction with the bonus does not make it part of the
employment agreement. Again, the Department’s rule would
allow the customer to unilaterally alter the employer’s labor
costs, whereas a rule that focuses on the parties’ agreement
would prevent the employer’s costs from being decided by
the whims of an outsider.

       In short, in both the case of the youngster and the car
service driver, looking to the parties’ agreement protects the
employer from having to pay for a third party’s generous
actions. It does damage to the employment relationship to
force employers to include promised bonuses from third
parties as remuneration in the regular rate of pay, unless and
until the evidence demonstrates that those bonuses have
become part of the pay calculation agreed to in some fashion
by the employer and employee.

        In like manner, respecting the contracting parties’
actual agreement protects the employee. One can imagine a
circumstance in which an employer tries to pressure an
employee to accept remuneration from a third party so as to
artificially suppress on paper what the employer and
employee both regard as the regular rate of pay. Such a
manipulation would also occur if an employer tried to
categorize a portion of what was base pay as instead being a




                              13
bonus. The parties’ true agreement is what should matter, not
labels. See Youngerman–Reynolds 

(“[The regular rate] is not an arbitrary label chosen by the
parties; it is an actual fact.”).

     This is not only a matter of common law, but also of
common sense.6 It is axiomatic that a mutual assent is

       6
           As for common sense, we cite no less an authority
than Clark W. Griswold. In the classic movie National
Lampoon’s Christmas Vacation, the plot revolves around
Clark’s anxious anticipation of his Christmas bonus. See
National Lampoon’s Christmas Vacation (Warner Bros.
1989) (Really, you should see it.). When the regular bonus
does not arrive and instead Clark receives a jelly-of-the-
month club membership, he berates his boss, saying,
“Seventeen years with the company, I’ve gotten a Christmas
bonus every year but this one. You don’t want to give
bonuses, fine. But when people count on them as part of their
salary, well[.]” 

Christmas lights on his house,
Clark doesn’t seem to be overly bright, but he at least
understands how a course of dealing can lead to an
expectation that could be viewed as a meeting of the minds
about remuneration for employment. In other words, it is
common sense that labels alone do not control. And, of
course, the required agreement between employer and
employee need not be explicit. It may be implied through an
employer’s significantly facilitating regular compensation
that reaches the employee. Walling v. Richmond Screw
Anchor Co., 

, 784-85 (2d Cir. 1946). Whether
an agreement is fairly implied is discussed further herein. See
infra at II.B.




                              14
necessary to form a contract. See 1 Samuel Williston &
Richard A. Lord, A Treatise on the Law of Contracts § 4:1
(4th ed. 1993 & Supp. 2019) (recognizing that long-standing
principle and noting that “the inquiry will focus not on the
question of whether the subjective minds of the parties have
met, but on whether their outward expression of assent is
sufficient to form a contract”). The FLSA naturally takes
account of that.

       The Department of Labor views the situation
differently. It relies on three Wage and Hour Division
Opinion Letters, a district court opinion, and the purpose of
the FLSA to contend that “compensation for performing
work” qualifies as remuneration for employment, regardless
of whether the payment is provided by a third party and no
agreement exists. (Answering Br. at 15.) But none of those
authorities will bear the weight of the conclusion pressed by
the Department.

       The three Wage and Hour Division Opinion Letters the
Department of Labor relies on do not actually undercut the
necessity of an agreement at all. Two of the letters – one
from 2005, U.S. Dep’t of Labor, Wage & Hour Div., Opinion
Letter (July 5, 2005), and one from 1966, U.S. Dep’t of
Labor, Wage & Hour Div., Opinion Letter (Nov. 16, 1966)
(Answering Br. Add. B) – address programs in which retail
employees could earn a bonus by selling a vendor’s products.
In the scenarios those letters describe, a third party sponsored
the bonuses in concert with the employer. The sponsorship
was effectively joint.7 Thus, the bonus payments could, given

       7
         Those programs addressed a vendor compensating
retail employees under circumstances where the only




                              15
the specific facts of those cases, rightly be seen as part of the
relevant employment agreements. The third letter, another
from the mid-60’s, covers a third-party payment from a taxi
cab company to hotel doormen. U.S. Dep’t of Labor, Wage
& Hour Div., Opinion Letter (May 25, 1967) (Answering Br.
Add. A). In that scenario, the hotel employees received
regular monthly payments from the cab company and the
employer actively advocated treating those payments as
remuneration for employment. See Walling v. Richmond
Screw Anchor Co., 

, 784 (2d Cir. 1946)
(concluding that payments that were regularly and actually
made and facilitated by the employer could qualify as
remuneration for employment). Significantly, the employer
was seeking a determination from the Department of Labor
that the third-party payments could be credited towards the
employer’s minimum wage obligations. In other words, the
hotel embraced, rather than disputed, that the payments to the
doormen were compensation for employment. Facts like that
matter.

       The district court case the Department of Labor relies
on, Romano v. Site Acquisitions, LLC, is also unpersuasive for
the position the Department has taken here. No. 15-cv-384,

(D.N.H. June 19, 2017). First of all, the
Department has enforced the FLSA for a very long time, yet
it can only point to a single unreported district court opinion



conclusion that can be drawn is that the programs were jointly
sponsored. Because in each instance the retailer controlled
both the store and its employees, it had to have approved and
actively participated in the program from the outset for the
sponsorship program to function.




                               16
indicating that an incentive bonus from a third party could be
included in employees’ remuneration for employment. 

The near total absence of other authority is alone
telling. If, in eight decades, no court has said what the
Department of Labor now asserts is the meaning of the
statute, that interpretation is probably unsupported because it
is unsupportable.

       Moreover, a careful reading of Romano lends little aid
to the Department’s position. Romano did not reach the
conclusion that incentive bonuses are always remuneration
for employment. The court in that case held that an incentive
bonus that AT&T gave a contractor’s employees, paid
through the contractor, could be included when calculating
the regular rate. 

, at *1-2, 4, 8-9. But the
court’s analysis focused on the statutory exemptions to
overtime calculations and not on whether the payments were
“remuneration for employment” in the first place. 

As the Department acknowledges, in Romano the employer
did not argue that the payments were not remuneration for
employment, only that they fit under an exemption. 

the procedural posture of the case was a motion by
the employer for summary judgment. 

The court
therefore only determined that the employer’s exemption-
based arguments in favor of summary judgment were
insufficient. The opinion went no further.8

      8
          The Department also cites to Mata v. Caring For You
Home Health, Inc., 

(S.D. Tex. 2015), but
that case is plainly inapposite. In Mata, money from a state
health program was used to pay employees’ bonuses, but the
employer retained discretion to decide if the money would be
given as a bonus or used for health insurance. 

The




                              17
        The Department of Labor also argues that its preferred
definition of remuneration for employment “is reasonable in
light of the purpose of the FLSA” and is supported by our
Court’s long recognition of “the FLSA’s broad remedial
purpose.” (Answering Br. at 29 (citations omitted).) The
statutory purpose that the Department focuses on is the
protection of the “general well-being of workers.” 29 U.S.C.
§ 202(a). But the FLSA also recognizes that protecting the
“general well-being of workers” is to be done “without
substantially curtailing employment or earning power.” 29
U.S.C. § 202. The Department completely ignores that
statutory purpose, reflecting a very short-sighted
understanding of worker well-being.

       Imposing unexpected costs on employers does not
work to the long-term benefit of employees. On the contrary,
an employer’s costs can certainly have negative consequences
for employees. The Department’s preferred rule would
encourage employers to stop allowing their employees to
accept bonuses from third parties, lest the employer’s own
labor costs increase. If that predictable consequence ensues,
employees will be denied extra income. And, if some
companies decide to swallow the risk and allow such
bonuses, they will nevertheless have to deal with the



court’s analysis only addressed whether the payments
qualified under an exemption to § 207(e), since employees
had been told “that they would receive the bonus as part of
their wages” and there was little doubt the bonuses were
agreed to serve as compensation for employment. 

76.




                             18
increased labor costs in some way. They will either increase
their prices as they bid on jobs, or, to remain competitive,
they will cut costs somewhere, perhaps by hiring fewer
workers. The challenge will be particularly felt by small
businesses that can ill-afford to deal with the added expense
and complexity imposed by the Department’s rule. In the
end, allowing third parties to unilaterally increase a
company’s labor costs is likely to be bad for employees as
well as employers. For instance, here, had Bristol known that
permitting the employees to qualify for the bonuses would
increase its labor costs, perhaps it would have said no when
the employees asked if they could accept them. The
Department thus is arguably not following the FLSA’s
instruction to protect the “general well-being of workers[.]”

if the pain of the Department’s interpretation
were only visited on employers, it is a “flawed premise” to
think “that the FLSA pursues its remedial purpose at all
costs.” Encino Motorcars, LLC v. Navarro, 

,
1142 (2018) (internal quotation marks and citations omitted).
Indeed, “no legislation pursues its purposes at all costs.”
Rodriguez v. United States, 

, 525-26 (1987) (per
curiam). “[A] fair reading” of the FLSA, neither narrow nor
broad, is what is called for. Encino 

. And that is as should be expected, because employees’
rights are not the only ones at issue and, in fact, are not
always separate from and at odds with their employers’
interests.

        In short, we reject the Department’s proposition that
all third-party payments are to be considered remuneration for
employment. Instead, we conclude that a third-party payment




                             19
qualifies as remuneration for employment only when the
employer and employee have effectively agreed it will.

       B.     The Record Does Not Show That an Implicit
              Agreement Existed That All of the Talisman
              Bonuses    Were      Remuneration       for
              Employment.

        Here, there was no explicit agreement between Bristol
and its employees that the Talisman Bonuses would serve as
remuneration for employment. That, however, does not end
our inquiry. We must determine whether the record shows
that there was an implicit agreement that those bonuses would
be such remuneration. See Richmond Screw Anchor 

(explaining that the required agreement can be
implied through facilitation of compensation regularly and
actually reaching the employee); see also Jacksonville
Terminal 

(noting that a conclusion that
all tips are not included in the regular rate “does not foreclose
a decision that in certain specific situations the so-called tips
may be in reality the employee’s compensation for his
services”).

        Whether an implicit agreement has developed between
an employer and its employees that third-party bonuses are
rightly regarded as “remuneration for employment” is a
question that does not lend itself to an easy, bright-line test.
It presents complexities best resolved by a holistic
consideration of the particular facts of each case. Before one
tries to answer the ultimate legal question of how, from a
regulatory standpoint, to treat a third-party bonus, there are
some signs to look for in the factual record.




                               20
        As a threshold matter, for a payment to become part of
the employment agreement, it must be regularly and actually
received by the employee. Richmond Screw Anchor 

. That is a necessary but not sufficient condition.
That kind of course of dealing can give rise to a mutually
understood level of compensation for specific work. Because
an employee cannot expect a bonus he does not know he is
entitled to, the payment by a third party of an unannounced or
truly discretionary bonus should not be classified as
remuneration for employment.9 If, however, an employer

       9
            Our opinion should not be misunderstood as
conflating “remuneration for employment” with a payment’s
inclusion in the “regular rate.” By statute, certain
discretionary payments may be renumeration for employment
yet not part of the regular rate. See 29 U.S.C. § 207(e)(3)
(exempting incentive bonus payments where the employer
retains discretion over the amount and fact of payment until
close to the time payment is made). We are not, however,
wrestling with whether one of the statutory exemptions
applies to keep remuneration for employment out of the
regular rate of pay. We are considering here a related but
different question: whether an implicit agreement has been
reached between the employer and its employees about the
treatment of third-party bonuses. And we are suggesting at
this point only that, if a third-party bonus is discretionary, that
bonus cannot be legitimately expected by the employee and,
therefore, cannot give rise to an implicit agreement between
the employer and the employee that it constitutes
remuneration for employment. Cf. Balt. & O.R. Co. v. United
States, 

, 598 (1923) (“And so an agreement to
pay for services rendered by the plaintiff will not be
implied … when the plaintiff did not expect payment, or




                                21
regularly and predictably relies on a bonus to induce certain
behavior, that would certainly be a significant factor in
determining whether that regular bonus was remuneration for
employment, even though the bonuses originated from a third
party.10 And the more direct the employer’s involvement is in
initiating a program or setting and insisting upon a specific
payment from a third party, the clearer it becomes that the
employer is invested in the arrangement in a way that could
be called an implicit agreement with the employees that the


under the circumstances did not have reason to entertain such
expectation; [or] when the defendant understood that the
plaintiff would neither expect nor demand remuneration[.]”
(citations omitted)).
       10
           Thus, if employees do not have a legitimate
expectation that they will receive a particular bonus for
achieving a particular result, such compensation would not be
included in the regular rate.              (Cf. Oral Argument
https://www2.ca3.uscourts.gov/oralargument/audio/17-
3663SecretaryUSv.Bristol.%20.mp3 (“Oral Arg.”) at 24:38-
24:59 (argued Sept. 11, 2018) ([Counsel for Department of
Labor]: “[I]f they have announced it in advance … such that
the employees have an expectation that they are going to
receive it and … it’s tied to a metric that’s … measurable and
inducing the employees to work in a certain way, then, if it is
in fact paid, then it is included in the regular rate.”); Oral Arg.
at 25:57-26:10 ([Counsel for Department of Labor]: “[I]f they
have left it completely subjective as to the amount and the
fact of payment, then it is more discretionary, but that is not
the same as a production bonus in the sense that employees
… don’t know how much more do I have to work.”).)




                                22
third-party incentive bonuses are remuneration for
employment.11 Cf. 1 Samuel Williston & Richard A. Lord, A
Treatise on the Law of Contracts § 4:1 (4th ed. 1993 & Supp.
2019) (in asking whether parties have an agreement, the focus
is on “their outward expression of assent”).

       Contrary to the Department’s argument, though, an
implicit agreement does not arise between an employer and
its employees simply because the employer permits its
employees to participate in a third-party bonus program and
does something to facilitate their receipt of the bonuses.

      11
           Considering the level of an employer’s involvement
in the payment is consistent with the line the Department of
Labor itself has drawn by directing employers to include
service charges, even those paid by third parties, in overtime
calculations. See 29 C.F.R. § 531.55(a) (“A compulsory
charge for service, such as 15 percent of the amount of the
bill, imposed on a customer by an employer’s establishment,
is not a tip and, even if distributed by the employer to its
employees, cannot be counted as a tip[.]”). Thus, tips are the
property of the employee, while money received from
mandatory service charges is always wages when given to the
employee. 

to a compulsory charge, a
suggested gratuity might need to be included in remuneration
for employment, but that decision is best left to the trier of
fact. See Bradescu v. Hillstone Rest. Grp., No. SACV 13-
1289, 

, at *3-4 (C.D. Cal. Sept. 18, 2014)
(concluding that whether customers paying employer-
suggested but not employer-compelled gratuities for large
parties qualified as “remuneration for employment” was a
triable issue of fact).




                             23
Many employers permit their employees to receive payments
from third parties and take minor steps to facilitate their
employees’ receipt of those payments, without those
payments qualifying as remuneration for employment, tips
being the most obvious example. Employers often act as a
conduit, processing credit card receipts or otherwise passing
through to their employees money coming from third parties.
In establishments that allow tipping, that basic facilitation
does not transform a tip into remuneration. An employer has
no choice but to promptly pass on such payments, or it risks
committing tip theft. 29 U.S.C. § 203(m)(2)(B). So an
employer’s merely acting as an intermediary is not, without
more, enough to make such payments remuneration for
employment.12

      That does not mean that facilitation is irrelevant. Far
from it. The deeper an employer gets into the creation,
management, and payment of an incentive bonus program,
the more those bonus payments begin to look like part of the

       12
           Despite the Department’s assertion, withholding of
taxes on payments likewise does not transform an employer
from an intermediary into something more. An employer is
legally required to collect taxes on tips, file tax forms relating
to tips, and remit those taxes to the IRS. 26 C.F.R.
§ 31.3402(k)-1. Courts have similarly concluded, that even
when public safety employers, such as police departments,
remit payments through their payroll system and deduct taxes
for “special detail work” performed by their employees for
third parties, those payments should not be used to adjust the
regular rate. See, e.g., Lemieux v. City of Holyoke, 740 F.
Supp. 2d 246, 256 (D. Mass. 2010); Nolan v. City of Chi., 

, 336 (N.D. Ill. 2000).




                               24
regular pay structure to which the employer has agreed, and
that is the ultimate question: has there been an assent by both
the employer and the employees that the third-party bonuses
are part of their employment agreement.

        To sum up, in order for a course of dealing to result in
an implied agreement to treat third-party incentive bonuses as
remuneration for employment, a fact finder should consider
whether the specific requirements for receiving the payment
are known by the employees in advance of their performing
the relevant work; whether the payment itself is for a
reasonably specific amount; and whether the employer’s
facilitation of the payment is significantly more than serving
as a pass through vehicle. If the answer to all of those
questions is yes, there should then be a holistic assessment of
the level of the employer’s involvement in the third-party
bonus program, to determine if it can fairly be said that the
employer and employees have adopted the third-party
incentive bonuses as part of their employment agreement.
There may be other relevant considerations that arise from
case to case, but an employer’s role in initiating, designing,
and managing the incentive bonus program will likely be of
high importance.

       In short, the question is whether there has been a
course of dealing sufficient to characterize the payment as
one that is legitimately expected by the employees and
legitimately understood as being sponsored in a meaningful
way by the employer.13 Cf., e.g., McLaughlin v. McGee Bros.

       13
          Without a legitimate expectation based on advanced
notice, there is no basis for considering whether the bonus is
an incentive. Otherwise, the matter is simply too vague and




                              25
Co., 

, 1133 (W.D.N.C. 1988), aff’d sub
nom. Brock v. Wendell’s Woodwork, Inc., 

(4th
Cir. 1989) (noting that employer-given “incentive-type
bonuses … given pursuant to an agreement or understanding
as a reward for specific employee behavior … must be
included in the regular rate” (emphasis added)).
              1.     The Record Does Not Support Summary
                     Judgment that the Efficiency     and
                     Pacesetter Bonuses Are Remuneration
                     for Employment.

       Here, at least as to the efficiency and Pacesetter
bonuses, the record shows there is reason to question whether
employees knew the specific requirements to earn a set bonus
in advance of performing the relevant tasks, so as to give rise
to the requisite expectation. This forecloses for now, at the
summary judgment stage, a decision that those incentive
bonuses are remuneration for employment. It is possible that
they were understood and expected by the employees as part
of their job with Bristol, but it is also possible that the
bonuses were not understood by the employees as




generalized, and, as the Department acknowledges, “[e]very
employee knows, ‘well if I work hard my employer is going
to be happy.’” (Oral Arg. at 26:12-26:15.) The Department
also acknowledges the importance of possessing that
knowledge in advance in its brief, arguing that “the work
requirements for receiving the bonuses … [were explained]
before the employees performed the work for which they
could earn the bonuses.” (Answering Br. at 5.)




                              26
remuneration from Bristol at all but rather as a discretionary
gratuity from Bristol’s customer.14

        The Department of Labor alleges that “Bristol …
explained the program to its employees, including the
requirements for receiving the bonuses” (Answering Br. at 18
n.9), in advance of the employees’ performing the work. And
the Department offered some evidence regarding the
Talisman Bonus program to support that allegation. But the
evidence is either disputed or not sufficient to show that
Bristol’s employees were aware of the specific requirements
to qualify for the bonuses, in advance of performing the
work.15 For instance, while Bristol admitted that it explained

      14
           The District Court found that it was not disputed
that “[the employees] knew the terms for earning each
bonus.” (App. at 3.) But whether the employees knew the
terms of the bonus is a distinct question from whether the
employees knew those terms in advance of performing work.
Moreover, knowing the general terms is different than
knowing the specific terms, and the District Court itself said
that “Talisman retained sole discretion” while “Bristol did not
have discretion” over the bonuses. (App. at 3, 9.) Bristol’s
lack of control and knowledge is not dispositive of whether
an agreement was in place, but it is enough to raise a genuine
issue of material fact as to whether it could have even
communicated the specific terms of the bonus to its
employees.
      15
          The Department states that “bonuses were promised
to be paid upon the occurrence of certain events[,]”
(Answering Br. at 11,) but the Department points to nothing
in the record to support that contention, and we could find no




                              27
the process for claiming the bonuses to its employees, it did
not admit to explaining the process for earning them.16
 Specificity matters. While employees may have been aware,
prior to performing their daily duties, that job performance
could lead to a bonus, the record suggests that Bristol’s
employees may not have been aware of the specific
requirements to earn a bonus.17 And some evidence indicates



evidence supporting it. The Department asserted that,
“[d]uring the [Talisman] meetings, the … operators would
also be shown charts explaining why a hole was or was not
eligible for a bonus.” (Pl.’s Facts D.I. 19-1 at 5-6 ¶ 21.) And,
Bristol generally agreed that “[i]nformation pertaining to the
bonuses and whether [the employees] had qualified for a
bonus for a particular hole was made available to [employees]
at the safety meetings.” (Def. Res. to Pl.’s Facts D.I. 21 at
18.) But informing employees that they are “eligible” or
“qualified” for a bonus after the fact is not the same as
informing an employee in advance about the conduct needed
to earn those bonuses. Employees knowing that certain
behavior could lead to a bonus is not the same as employees
knowing it would lead to a bonus.
       16
          The Department asserts that “Bristol explained to the
… operators the requirements for receiving the bonuses
before they performed the work and started receiving the
bonuses.” (Pl.’s Facts D.I. 19-1 at 4 ¶ 15.) But Bristol denied
that allegation. Bristol admitted that it explained the process
to claim bonuses but not how to earn them.
       17
         For example, one Bristol employee spoke about
“know[ing] that it’s a possibility that we can achieve it,” and




                              28
that Talisman, not Bristol, communicated the terms of the
bonus program to Bristol’s employees – and may have done
so after those employees performed their work, as opposed to
before.18

      Moreover, since Talisman had complete discretion to
change the amount of the bonuses it offered or the specific


spoke about the criteria being based on “perform[ing] very
well” – a very subjective, not objective, criteria. (App. at 190
(emphasis added).) Another employee indicated a general
awareness of the bonuses before performing work, but he did
not have any knowledge about the specific requirements to
earn any bonus except the safety bonus. While one employee
did state that the bonuses were common knowledge known
before performing work, he also stated that the charts were
“just handed around to see if you got it and if you got it, fine,
if you didn’t, it would show a chart on why you didn’t[,]”
indicating the charts were not telling employees what they
needed to do but, instead, what they had done. (App. at 168.)
Statements like those are enough to create a genuine dispute
about whether the Pacesetter and efficiency bonuses were
incentive bonuses.
       18
           (See App. at 187 (“Talisman … issued out a paper
in all of our safety meetings … and it would tell us everything
that we achieved and the amount of money that we would be
getting[.]); App. at 184 (“Like, they would give us a paper
after every well and let us know what we got.” (emphasis
added)); Def. Facts D.I. 23-2 at 8 ¶ 28 (noting Bristol was
“not [even] sure what Talisman’s criteria were when deciding
to pay an [efficiency] bonus or a pace setter bonus.”).)




                               29
requirements to earn them, and could decide at any time to
cancel the bonus program, it is unclear as a matter of fact that
Bristol employees could have a legitimate expectation of
receiving a given amount for completing a task. One
employee even described the Talisman Bonuses being given
out of “appreciation[,]” not to induce striving for known
benchmarks. (App. at 190.) On the record as it now stands,
we cannot definitively say there was a course of dealing
sufficient to give rise to an implicit agreement.

       The Department of Labor argued in the District Court
that “[i]t would, of course, make little sense to institute
performance bonuses without telling employees about them in
advance.” (D.I. 21 at 18 (citation omitted).) That assertion
may or may not be accurate, but this much is certainly true: a
moving party cannot prevail on summary judgment by
arguing an inference in its own favor. Every reasonable
inference is to be drawn in the non-moving party’s favor,
Tolan v. Cotton, 

, 660 (2014), and the record
here contains enough evidence to permit the reasonable
conclusion that Bristol employees did not have the kind of
information that would give them a legitimate expectation of
a specific payout for specific performance.

        Looking more particularly at evidence pertaining to the
efficiency and Pacesetter bonuses, Bristol acknowledged that
“the [efficiency] bonus was paid for getting the hole drilled
faster than the days Talisman had anticipated for drilling the
hole, and the pace setter bonus was paid for drilling deeper on
any given day than Talisman had anticipated[,]” (D.I. 23-2 at
8 ¶ 29), but that is not sufficiently specific. “Faster” and
“deeper” are subjective criteria unless a benchmark is given.
There is no evidence showing employees knew in advance




                              30
what drilling faster or deeper meant.19 And nowhere in the
record is there even an allegation of how much compensation
the efficiency bonus would yield.20 While one employee
testified that the bonuses were “guaranteed every time [and
were for] the same amount of money” (App. at 190), the same
employee also indicated the amount of compensation
employees earned was not shared with employees until after
the fact. Regardless of the degree of Bristol’s involvement in
the bonus program, then, there remains the question of
whether the course of dealing was long enough and consistent
enough to amount to an implicit agreement that the bonuses
would serve as remuneration for employment.

       Therefore, summary judgment was not warranted for
the efficiency and Pacesetter bonuses, and we will vacate the
District Court’s order with respect to those payments.

             2.     The Safety Bonus Qualifies             as
                    Remuneration for Employment.




      19
          In fact, at oral argument the Department of Labor
could not point to a single place in the record that indicated
either the Pacesetter or efficiency bonuses were based on
objective metrics. (Oral Arg. at 21:50-22:00.)
      20
           There is a reference in the record to a Pacesetter
bonus being $500, but it is not clear that it was always $500.
As noted by the District Court, “[o]ver the course of this
working relationship, Talisman changed the amount of the
bonus at its leisure.” (App. at 3.)




                             31
       In contrast, the record does adequately establish that
the safety bonus was remuneration for employment.21 The
parties do not dispute that Bristol employees knew the
specific conduct necessary to earn it – the safety bonus was
attained if there were no accidents or injuries during the job.
Employees did not have to be briefed daily in order to clearly
know the specific conduct required to earn the bonus and
have an expectation of receiving it. Employees also knew the
specific compensation they would receive. The amount of the
safety bonus was always the “daily bonus rate of $20 or $25.”
(D.I. 19-1 at 5 ¶ 19.) Thus, regardless of whether employees
were told daily that they would receive the safety bonus if
they met its requirements, there is little doubt they knew the
specific conduct required to earn a specific sum and had an
expectation of receiving it for doing what was required. It is
also undisputed that Bristol’s facilitation of the program went
significantly beyond merely acting as a pass-through.

        Bristol reached out to Talisman to ask if its employees
could participate in the bonus program. Bristol tracked which
of its employees earned a bonus and reported that information
to Talisman. Bristol regularly invoiced Talisman for payment
on behalf of its employees. And finally, Bristol concedes that
it was responsible for getting those invoices approved by
lower level Talisman employees and “sending the information
to Talisman’s contracted invoice processor.” (Opening Br. at
3.) Bristol also collected a “a reasonable processing fee” for
its efforts. That level of involvement is enough to support the
conclusion that Bristol effectively adopted Talisman’s bonus

      21
          We can affirm the District Court on any grounds.
Blunt v. Lower Merion Sch. Dist., 

, 265 (3d Cir.
2014).




                              32
program and implicitly agreed to make it part of the
employment agreement with its employees.22

      On this record, therefore, the safety bonus is
remuneration for employment. And, because the safety bonus
does not qualify under any of the statutory exemptions,23 it
      22
           The same may be true as to the efficiency and
Pacesetter bonuses, but we leave consideration of a more
developed factual record to the District Court in the first
instance.
      23
           Recall that the FLSA provides eight enumerated
exemptions to the requirement that all remuneration for
employment be included in the “regular rate” for overtime
purposes. 29 U.S.C. § 207(e). The employer bears the
burden of establishing the applicability of an exemption.

.
       Before the District Court, Bristol argued that the
bonuses should qualify under three possible exemptions:
“bonus payments as gifts; payments made for occasional
periods when no work is performed; and payments paid for
services, without prior agreement, where discretionary
payment in fact and amount is retained by the employer.”
(App. at 5-6 (citing U.S.C. § 207(e)(1)-(3)).)
       Bristol did not raise in its opening brief the arguments
that the bonuses should qualify for the exemption for gifts or
occasional periods when no work is performed. As a result,
we need not consider those arguments now. Hoxworth v.
Blinder, Robinson & Co., 

, 204-05 n.29 (3d
Cir.1990). Even if we did, however, it would be a painful
stretch to say that the safety bonus qualifies under those
exemptions. Gifts are defined to include “payments in the
nature of gifts made at Christmas time or on other special




                              33
should be included in the “regular rate” of pay for those
Bristol employees who have been earning that bonus.

III.   CONCLUSION

       For the foregoing reasons, we will affirm the District
Court’s judgment in part, vacate it in part, and remand for
further proceedings consistent with this opinion.




occasions,” 29 U.S.C. § 207(e)(1), and the safety bonus was
not reserved for special occasions. The exemption for
“payments made for occasional periods when no work is
performed” requires that work is not performed, but here
bonuses were achieved by working at the Talisman sites. 

        The only exemption Bristol alludes to in its opening
brief is the exemption for bonuses where the employer retains
discretion. 

But here, the safety bonus was
regularly paid, and to qualify as a discretionary bonus such a
bonus must be paid without “any prior contract, agreement, or
promise causing the employee to expect such payments
regularly[.]” 

shows there was a legitimate
expectation with respect to the safety bonus.




                             34