In Conner v. Cleveland County, N. Carolina, 22 F.4th 412 (4th Cir. 2022), the Fourth Circuit held that the overtime provisions of the Fair Labor Standards Act (“FLSA”) allow claims for “overtime gap time.” Overtime gap time refers to a particular type of wage-payment scheme, aimed at making employees subsidize their own overtime wages, where in weeks where the employee works overtime the employer pays full overtime compensation but reduces the employee’s regular rate of pay.
Congress enacted the FLSA “to protect all covered workers from substandard wages and oppressive working hours.” Trejo v. Ryman Hosp. Props., Inc., 795 F.3d 442, 446 (4th Cir. 2015) (quotes omitted.) To accomplish these goals, the FLSA requires employers to pay their employees both a minimum wage and overtime pay. Hall v. DIRECTV, LLC, 846 F.3d 757, 761 (4th Cir. 2017).
Specifically, the FLSA requires employers to pay their employees at least the federal minimum wage. 29 U.S.C. § 206(a)(1). And it requires employers to pay not less than time and a half for each hour worked over forty hours during a workweek. Id. § 207(a)(1). The FLSA’s overtime requirement “was intended ‘to spread employment by placing financial pressure on the employer’ and ‘to compensate employees for the burden of a workweek in excess of the hours fixed in the Act.’ ” Calderon v. GEICO Gen. Ins. Co., 809 F.3d 111, 121 (4th Cir. 2015).
As Conner pointed out, there are situations that fall between the minimum wage and overtime provisions of the FLSA. “In addition to seeking unpaid overtime compensation, employees may seek to recover wages for uncompensated hours worked that ‘fall between the minimum wage and the overtime provisions of the FLSA,’ otherwise known as ‘gap time.’ ” 22 F.4th 412, 421 (cites omitted).
Gap time “refers to time that is not [directly] covered by the [FLSA’s] overtime provisions because it does not exceed the overtime limit, and to time that is not covered by the [FLSA’s] minimum wage provisions because … the employees are still being paid a minimum wage when their salaries are averaged across their actual time worked.” Id. (cites omitted).
Two Types of Gap Time: Pure Gap Time and Overtime Gap Time
Conner noted that there are two types of gap time—pure gap time and overtime gap time.
In pure gap time claims, the employee seeks to recover for unpaid straight time in a week in which they worked no overtime. 22 F.4th at 421.
In overtime gap time claims, the employee seeks to recover unpaid straight time for a week in which they did work overtime. Id.
No provision of the FLSA explicitly governs employee claims to recover for unpaid gap time. The Fourth Circuit, like other courts, has held that “there is no cause of action under the FLSA for pure gap time when there is no evidence of a minimum wage or maximum hour violation by the employer.” 22 F.4th at 421 (cites omitted) (emphasis in Conner). Rather, a “claim to [pure] gap time compensation is enforceable only under” state law related to the parties’ employment agreement. Id. (cite omitted). So an employee might be able to bring a pure gap time claim under state wage-payment laws, but not under the FLSA.
While courts consistently reject pure gap time claims under the FLSA, courts have been divided
on whether under the FLSA an employee can bring an overtime gap time claim for unpaid straight time worked in an overtime week. Id. Prior to Conner, the Fourth Circuit had not addressed this question.
Conner worked for Cleveland County as an emergency medical services (EMS) employee. Her complaint alleged that Cleveland County underpaid her for straight (i.e., non-overtime) hours worked during weeks in which she also worked overtime.
While there are many ways an employer might underpay straight time in weeks when an employee works overtime, here’s how Cleveland County did it:
- Pursuant to a local ordinance, Conner’s EMS compensation plan called for an annual salary of $36,900, paid in 24 semimonthly installments.
- Conner, like other EMS personnel, worked 21-day repeating schedules comprising 24-hour shifts followed by 48 hours off, for a total of 2,928 hours per year. That works out to $12.60 per hour. Under this 24 on/48 off schedule, EMS employees always worked more than 40 hours per week, entitling them to overtime pay.
- The compensation plan provided a method for calculating overtime pay. First, the employee’s regular hourly pay rate was determined by dividing the employee’s annual salary by 2,928 hours (the number of hours actually worked per year based on the 24 on/48 off schedule). As noted above, for Conner that came out to $12.60. Then, to determine the overtime rate, the County multiplied the resultant hourly rate by 1.5. In Conner’s case, that was an overtime rate of $18.90. Conner did not challenge the lawfulness of this overtime calculation.
- However, the compensation plan also provided for a “revised semimonthly rate” for regular wages in weeks when the employee worked overtime. The revised semimonthly pay was determined by multiplying the hourly rate that was used to calculate overtime by 2,080 (representing 40 non-overtime hours per week worked for 52 weeks), instead of the 2,928 hours actually worked per year, and then dividing this number by 24. The resulting number was paid to the employee each pay period. When an employee worked overtime during a particular pay period, as Conner always did, the County took the amount to be paid for overtime hours (calculated as described above) and added it to the revised semimonthly wages to be paid for that pay period.
- Because it multiplied Conner’s hourly rate times 2,080, instead of the 2,928 hours actually worked per year, before dividing by 24, County’s scheme for paying the revised semimonthly rate meant that Conner was paid less in regular wages than the $36,900 established in the local ordinance and her compensation plan. Specifically, the pay plan cut her annual salary for regular wages from $36,900 (the amount established by local ordinance) to $26,208 (the hourly rate, $12.60, multiplied by the annual hours for a 40-hour workweek, 2,080).
Accordingly, Conner alleged that Cleveland County violated the FLSA by using her overtime wages to fill the “gap” between her straight-time compensation under the plan—$26,208—and her full salary—$36,900. 22 F.4th at 416-18.
At issue was whether this alleged underpayment was a violation of the FLSA’s overtime provisions, under the theory of “overtime gap time.”
The Court’s Decision
The Fourth Circuit held that the FLSA permits a claim for “overtime gap time” and that Conner sufficiently alleged such a claim.
In reaching this conclusion, the Court looked to the Department of Labor’s interpretive guidance provided in 29 C.F.R. § 778.315, titled “Payment for all hours worked in overtime workweek is required.” That regulation states:
In determining the number of hours for which overtime compensation is due, all hours worked by an employee for an employer in a particular workweek must be counted. Overtime compensation, at a rate not less than one and one-half times the regular rate of pay, must be paid for each hour worked in the workweek in excess of the applicable maximum hours standard. This extra compensation for the excess hours of overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) or under any applicable statute has been paid.
To illustrate this concept, the Court gave an example where an employee has a salary of $1,500 per week, and in a given workweek earns $750 in overtime pay. Instead of issuing the employee a paycheck for $2,250, the employer issues a paycheck in the amount of $1,750. The paystub then designates a payment of $1,000 as “salary” and $750 as “overtime compensation.” In this scenario, there is a violation of the overtime provisions of the FLSA according to § 778.315 because it is improper to designate $750 as “overtime pay” without first having paid all straight-time wages. Effectively, the employer would have only paid the employee $250 in overtime pay out of the $750 owed. 22 F.4th at 422-23.
The Fourth Circuit observed that this regulation clarifies that employers may not invent “creative payment schemes” to shirk their responsibilities under the FLSA. 22 F.4th at 423 (quoting U.S. Dep’t of Lab. v. Fire & Safety Investigation Consulting Servs., LLC, 915 F.3d 277, 286 (4th Cir. 2019). The Court pointed out that without such guidance, an employer could engage in wage theft (e.g., stealing $500 of overtime wages in the example above) while claiming to abide by the letter of the FLSA overtime provision. Such a scheme would be contrary to congressional intent, which “was to protect employees from detrimental labor conditions” including “excessive work hours and substandard wages.” 22 F.4th at 423 (cites omitted).
The Fourth Circuit further determined that given the congressional intent behind the FLSA, Section 778.315 had significant “power to persuade” and was entitled to judicial deference under Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). The Court therefore concluded that the Fourth Circuit will follow the DOL’s guidance and will look to its interpretation of the overtime provision to analyze overtime gap time claims.
Two Prong Test for Overtime Gap Time Claims
The Fourth Circuit established a two-prong test for overtime gap time claims. The Court held that to maintain such a claim, the facts in the complaint must support a reasonable inference that:
- the employee worked overtime in at least one week; and
- the employee was not paid all straight-time wages due under the employment agreement or applicable statute.
Turning to Conner’s specific situation, the Court noted that Conner alleged that under the 24 on/48 off schedule, she worked overtime in at least one week, and that the County’s “revised semimonthy rate” pay scheme resulted in her not being paid all straight-time wages due under the applicable local ordinance that provided for $36,900 in annual regular wages. Accordingly, the Court held that Conner satisfied the two-prong test with sufficient factual allegations of an FLSA overtime gap time violation to overcome a Rule 12(b)(6) motion to dismiss.
In sum, Conner held that the FLSA allows claims for “overtime gap time.” Overtime gap time refers to a particular type of wage-payment scheme, aimed at making employees subsidize their own overtime wages, where in weeks where the employee works overtime the employer pays full overtime compensation but reduces the employee’s regular rate of pay. This holding makes clear that employers cannot engage in creative payment schemes to shirk their responsibilities under the FLSA.
This article was also published on TimCoffieldAttorney.com.
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