Wednesday, May 24, 2023

Pro tip: don’t monkey with an employee’s “regular” hourly rate to avoid overtime obligations

Let's say you have an employee who works 40 hours per week at the rate of $13.00 per hour. Now let's say that same employee needs to start working 20 hours of overtime per week to meet your needs. You still, however, want that employee to earn to same effective rate of $13.00 per week, so you reduce the employee's straight-time hourly rate of $11.15. When the need to work overtime ends, you then return the employee to the original $13.00 rate. Is the reduction of the employee's base hourly rate legal under the Fair Labor Standards Act? 

According to the 11th Circuit in Thompson v. Regions Security Services, the answer is "not unless you want a jury to decide the legality of your pay practices under the FLSA."

The key issue, according to the Court, was which of Thompson's two pay rates was his "regular" rate of pay (the key number for purposes of performing the overtime calculation). 

That kind of arithmetic is an obvious bookkeeping device designed to avoid the payment of overtime compensation and is not in accord with law. And this an employer cannot do. Rather, the employee's regular rate of pay for overtime purposes is, obviously, the rate that he earns in the normal non-overtime week.

Even though an employer and employee are free to agree upon a rate of pay, and that rate of pay can increase or decrease over time upon such agreement, an employer cannot decrease it if the purpose of the decrease is to avoid or evade an overtime payment obligation. That's what this employer seemed to do here.

Even though Thompson alleged that Regional Security reduced his non-overtime hourly rate and scheduled him to work overtime in two successive steps, he also alleged that Regional Security simultaneously restored his non-overtime hourly rate and ceased scheduling him to work overtime. And during the year or so that Thompson worked overtime hours at a reduced non-overtime hourly rate, his average hourly rate for all those hours, including the overtime hours, was the same as his non-overtime hourly rate before the reduction. Those facts plausibly suggest that Regional Security used the fluctuation in Thompson's weekly average rate as a device to avoid paying overtime compensation at one-and-a-half times the non-overtime hourly rate that Thompson earned during the weeks he did not work overtime hours.

Don't try to game your overtime obligations. It's juice just isn't worth the squeeze.