Reducing Hourly Rate In Exchange For 12-Hour Shift Does Not Violate FLSA
The Ninth Circuit recently issued an employer-friendly ruling holding that an employer could lawfully reduce employees' base hourly rate in connection with allowing employees to work an alternative schedule of 12-hour shifts instead of 8-hour shifts. The employer was covered by an FLSA provision requiring payment of overtime for hours worked in excess of eight per day. In order to neutralize the additional costs associated with payment of an overtime rate for employees desiring to work 12-hour shifts, the employer and the affected employees agreed to a lower base hourly rate, with the effect being that the employees would earn about the same amount per pay period regardless of whether they worked a normal 8-hour shift schedule or the alternative 12-hour shift schedule.
Some of the employees later filed a class action alleging that the employer's reduction of their hourly rate was a subterfuge to avoid payment of mandated overtime premiums and thereby violated the federal Fair Labor Standards Act (FLSA). A federal district court disagreed and found that the employer's practice did not violate the FLSA. The employees appealed to the Ninth Circuit, but the Ninth Circuit agreed with the district court, concluding that an employer "may alter the 'regular rate' of pay in order to provide employees a schedule they desire" without violating the FLSA.
Although the Ninth Circuit's decision provides employers with much needed flexibility in considering whether to implement alternative workweek schedules, California employers are cautioned that the decision is based solely on federal law. The decision does not address California law, and it is not clear whether California's Department of Labor Standards Enforcement or a California court would find such a practice legal under California law. Notably, California's DLSE has previously issued at least one opinion letter disagreeing with some caselaw (the Belo case) on which the Ninth Circuit's decision is based. In addition, California Labor Code section 511(c) prohibits an employer from reducing an employee's regular rate of hourly pay as a result of the adoption, repeal or nullification of an alternative workweek schedule. As a result, California employers considering this type of pay reduction should consult counsel.
The Ninth Circuit decision is Parth v. Pomona Valley Hospital Medical Center and may be accessed here.