Employer’s Permanent Modification of Payroll Workweek in Order to Eliminate Overtime is OK under the FLSA

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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The Eighth Circuit Court of Appeals has determined that an employer’s permanent modification of employees’ “workweeks” in a way that reduced the number of overtime hours did not violate the Fair Labor Standards Act (FLSA). Abshire v. Redland Energy Services, IIC, 8th Cir., No. 11-3380, October 10, 2012.

The FLSA states that workers who are not exempt from its provisions and who work for more than 40 hours during a workweek must be compensated at a rate “not less than one and one-half times the regular rate.” In 2011, a district court in Arkansas granted summary judgment to Redland Energy Services, a company which had changed the designation of its workweek in a way so that fewer work hours qualified as overtime. While the employees argued that the company’s modification of the work schedules violated the FLSA, both the U.S. Department of Labor investigator and the district court determined that Redland did not, in fact, violate any provision of the FLSA. On appeal, the Eighth Circuit agreed.

Redland drills and services gas wells in Arkansas and used a Tuesday-to-Monday workweek to calculate pay and overtime owed to the drill rig employees. Each drill rig crew worked 12-hour shifts for 7 consecutive days, followed by 7 consecutive days off, and had 1 weekend off every 2 weeks under that schedule. Other non-drill rig employees used a Sunday-to-Saturday workweek, and most of those employees worked regular Monday through Friday jobs, with weekends off.

In May 2009, Redland announced a permanent change to pay the drill rig employees on a Sunday-to-Saturday workweek calculation, which meant that although they still would work Tuesday-to-Monday for seven days, with the next Tuesday-to-Monday week off, their workweeks would now be split into two payroll periods, reducing the amount of overtime. On the original schedule, they would work at least 84 hours in every other payroll week, with the following payroll week off; on the revised schedule, they would alternate between a 5-day, 60-hour week, and a 2-day, 24-hour week, decreasing their overtime from 44 hours in every other work week to 20 hours in every other work week. (Take my word for it—I drew it all out on a calendar just to confirm this!) A group of employees brought a lawsuit, alleging that the FLSA prohibits employers from changing an existing workweek for the purpose of reducing overtime hours.

In support of its motion for summary judgment, Redland stated that in addition to reducing overtime pay, the payroll schedule modification increased efficiency by reducing payroll calculation time and payroll expense. The Eighth Circuit agreed that the FLSA does not prescribe how an employer must establish its “workweek” and that that Act does not require that the workweek begin on any particular day. The issue in this case was whether the FLSA prohibited an employer from changing a workweek designation in a way that was more favorable to the employer. The Court determined that the FLSA was not designed to “maximize the payment of overtime,” and that, therefore, an employer’s effort to reduce its payroll expense was not contrary to the purpose of the FLSA.

The moral of this story is that as long as the modification made to a workweek is permanent, and as long as the change is implemented in accordance with the FLSA (which would require that overtime worked during the change-over must be paid appropriately), an employer’s reasons for adopting the change are irrelevant. However, before moving forward with any such revision of workweek designations, employers should review their circumstances with counsel to ensure compliance during the transition period, and ensure that the change is one that will not be reversed in the short-term, which may invalidate the transition entirely.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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