Takeaway: Under Section 207 of the Fair Labor Standards Act, an employer can lawfully reduce an employee’s nonovertime rate of pay in certain situations so long as the rate reduction isn’t designed to circumvent the act’s overtime provisions. Prudent employers would set this regular rate in a reasoned manner through wage negotiations with the affected employee to avoid the appearance of manipulating it to avoid paying appropriate overtime.
A security guard plausibly alleged that his employer used a fluctuation in his weekly average rate of pay as a device to avoid paying overtime compensation, the U.S. Eleventh Circuit Court of Appeals recently found.
When the security guard was first hired by his employer, his established regular rate of pay was $13 an hour, and he typically worked a 40-hour week. In January 2019, his employer began scheduling him for an additional 20 or so hours per week, raising his weekly total to about 60 hours. For the next seven months, he continued to earn his established hourly rate of $13 per hour for the first 40 hours he worked in a week. For each additional hour worked, he earned an overtime rate of time and a half—$19.50 per hour.
However, in July 2019, his employer reduced his rate to $11.15 per hour for the first 40 hours and correspondingly lowered his overtime rate to $16.73 per hour—again time and a half. For the next 11 months, the plaintiff worked between 55 and 75 hours per week. His reduced $11.15 rate caused him to earn on average $13 per hour for all 60 hours in a 60-hour workweek.
After nearly a year of this new arrangement, the employer abruptly reduced the plaintiff’s workweek to 40 hours and restored his nonovertime hourly rate to $13.
Court Action
The security guard sued his employer, alleging that it had reduced his hourly rate to an artificially low rate to avoid the Fair Labor Standards Act’s (FLSA) overtime provisions. The employer requested summary judgment on the pleadings, and the district court granted that motion. On appeal, the 11th U.S. Circuit Court of Appeals vacated the district court’s order and remanded the case for further proceedings.
The appeals court noted that the FLSA prohibits an employer from scheduling an hourly employee for a workweek longer than 40 hours without paying that employee overtime compensation. This requires an employer to pay two different compensation rates: 1) an employee’s “regular rate,” the nonovertime hourly rate that the employee regularly earns; and 2) the overtime rate, which must be at least 1 1/2 times the regular rate.
Turning first to statutory language of the act, the court said that 29 U.S.C. Section 207(e) indicates that the regular rate refers to the hourly rate actually paid to an employee for the normal, nonovertime workweek for which the employee is employed. In this case, however, since the employee had two different nonovertime hourly rates, the court has to determine which was his “regular rate.”
Under Section 207, an employer can lawfully reduce an employee’s nonovertime rate in some situations so long as the rate reduction is not designed to circumvent the overtime provisions of the FLSA, the court said. The employer alleged that it reduced the employee’s regular rate to accommodate his requested scheduling modifications. The court reasoned, however, that it couldn’t determine based on the pleadings whether the parties had permissibly contracted for the $11.15 rate.
Determining that the statutory language was inconclusive about the regular rate at which the plaintiff was employed, the court turned to the Department of Labor’s interpretations of the FLSA’s overtime provisions. The employee cited 29 C.F.R. Section 778.500 to support his claim that his regular rate was $13 an hour during the year or so that he worked significant overtime. Under that rule, an employee’s regular rate cannot “vary from week to week inversely with the length of the workweek.” This prohibition prevents an employer from circumventing the FLSA’s overtime requirements, the court explained. “Otherwise, an employer could use ‘simple arithmetic’ to lower an employee’s rate and increase his hours so that he could never earn time and a half pay—’no matter how many hours he worked.’ “
The court, satisfied that the statute interprets “regular rate” in a way that prevents employers from nullifying the FLSA’s overtime provisions, concluded that the employee plausibly alleged that the employer used “prohibited arithmetic” here. The court noted that soon after his employer began scheduling the plaintiff for 60-hour workweeks, the employer also slashed his nonovertime hourly rate from $13 to $11.15. Under this new nonovertime hourly rate, the employee would gross $780.50 for a 60-hour workweek—which is only $0.50 more than he would have earned if he were paid his former $13 nonovertime hourly rate for all 60 hours of work, the court said.
“This arithmetic, together with [the employee’s] allegations that [his employer] paid him $13 per hour as a regular rate during his initial tenure with the company and during the workweeks after it stopped scheduling him for overtime, supports the reasonable inference that [his employer] slashed his overtime hourly rate to avoid paying him an overtime rate equal to 1 1/2 times his established $13 rate,” the court held, vacating and remanding the district court’s order.
Thompson v. Regions Security Services Inc., 11th Cir., No. 21-10954 (May 18, 2023).
Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.
