Eleventh Circuit: Employers Cannot Artificially Reduce Employee Wages to Avoid Paying Overtime

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May 18, 2023

  

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Quick Look

  • An employer may not artificially manipulate an employee’s regular rate of pay in an effort to reduce or eliminate overtime time.

Discussion

In Thompson v. Regions Sec. Servs., Inc., the Eleventh Circuit said that an employer will violate the federal Fair Labor Standards Act (FLSA), if the employer artificially lowers an employee’s regular rate of pay in an effort to reduce or avoid the employer’s overtime pay obligations.

Here, a security guard was initially hired to work 40 hours a week at a rate of pay of $13.00 per hour. In early 2019, the company began scheduling the security guard for an additional 20 hours per week and for several months of his new schedule, the security guard properly received overtime pay at 1.5 times his regular rate for the additional hours beyond 40 per week. However, in mid-July of 2019, the company reduced the security guard’s regular hourly rate from $13.00 to $11.15 without explanation, which correspondingly reduced the security guard’s overtime rate from $19.00 to $16.73 for each hour beyond 40 hours. After approximately a year of working between 55 and 75 hours at this reduced hourly rate, the security guard was returned to a 40-hour per week schedule and his hourly rate was increased back to $13.00. The security guard filed suit against the company alleging a violation of the FLSA.

In pursuing his claim to the Eleventh Circuit, the security guard argued that his “regular rate” was $13.00 per hour, and that the reduction to $11.15 per hour was just an attempt to avoid paying him the full amount of overtime he was due. Looking to the U.S. Department of Labor’s (DOL) regulations and case law from other circuit courts, the Eleventh Circuit noted that an “‘agreement, practice, or device that lowers the hourly rate during statutory overtime hours or weeks when statutory overtime is worked is expressly prohibited under’ the Department’s interpretive regulations.” The Eleventh Circuit added that this prohibition prevents an employer from indiscriminately manipulating an employee’s hours and pay rate to effectively avoid paying time-and-a-half for overtime.

Because the rationale could vary as to why the security guard’s regular rate was reduced for an eleven-month period, during a period when the security guard was working the majority of his scheduled overtime hours, the Eleventh Circuit overturned the district court’s prior decision in favor of the company, and sent the case back for further consideration.

Action Items

  1. Review reductions in pay to ensure any reduction is related to legitimate business reasons and not to avoid paying overtime.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2023 ManagEase