In the recent case of Perth v. Pomona Valley Hospital, the Federal 9th Circuit gave an excellent summary of what employers can and can’t do to avoid overtime payments under the FLSA. In this case, a nurses union bargained for a 12-hour shift option at reduced pay. After knowingly accepting the arrangement, the claimant woke up to the fact two years later that employees who work eight-hour shifts are more likely to get paid overtime – so she filed a class-action suit. The court ruled on behalf of the employer, stating that: “Though our Circuit has never been asked to determine whether an employer subject to the FLSA may alter the ‘regular rate’ of pay in order to provide employees a schedule they desire, we conclude that such an arrangement does not contravene the FLSA’s purpose.”
Most important, the court shared these reminders about paying overtime:
- There is no Supreme Court or Ninth Circuit case that says whether an employer can or cannot reduce an hourly rate, so that when paid overtime the employee earns as much as they did in a 40-hour week while subject to the FLSA. “Courts around the country have dealt with similar matters, with conflicting results. Compare, e.g., Conner v. Celanese, Ltd., 428 F. Supp. 2d 628, 637 (S.D. Tex. 2006) (holding that an employer can comply with the FLSA by reducing the ‘regular’ wage paid to its employees and pay overtime at one and one-half times the reduced regular rate such that the total pay to the employees remains the same’), with Rhodes v. Bedford County, Tenn., 734 F. Supp. 289, 292 (E.D. Tenn. 1990) (‘The court is of the opinion that defendant’s implementation of [a revised pay plan similar to the one in this case] constitutes a scheme intended to avoid the overtime requirements of § 7. [Even though it] result[ed] in the workers being paid the same amount for the same number of hours worked both before and after the changeover. This was accomplished by artificially altering plaintiffs’ ‘regular rate’).”
- This opinion is limited to unique facts. In the case at hand, the reduced rate was agreed to, which is a significant factor in terms of “fairness.” In a sense, it was used as a way to prevent an overtime windfall to workers who asked for and received the flexibility of 12-hour days. For example, California allows the four day per week schedule with no payment of overtime so long as it is agreed to.
- “Employers cannot lawfully avoid the FLSA’s overtime provisions ‘by setting an artificially low hourly rate upon which overtime pay is to be based and making up the additional compensation due to employees by other means.’29 C.F.R. § 778.500(a). The FLSA also prohibits employers from adopting ‘split-day’ plans, in which the employee’s hours are arbitrarily divided in such a way as to avoid overtime payments. Walling v. Helmerich & Payne, Inc., 323 U.S. 37, 40 (1944); 29 C.F.R. § 778.501. Both types of plans work in a manner so that employees do not earn overtime compensation, regardless of how many hours they worked.”
- “The Department of Labor has provided regulations to guide employers who wish to ensure their regular rates are not deemed artificial or unrealistic. See 29 C.F.R. § 778.500(a) (‘[T]he overtime provisions of the act cannot be avoided by setting an artificially low hourly rate upon which overtime pay is to be based and making up the additional compensation due to employees by other means.’).”
- The claimant also argued that the pay plan is unlawful, because nurses working both the 8-hour and 12-hour shifts perform the same work, but are paid at different rates. “We find no authority that suggests employees cannot be paid different rates for different shifts, and Parth fails to present any authority to the contrary. We do, however, find ample authority from other circuits that supports PVHMC’s argument that workers working different shifts may be paid different rates.”