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Reduced Pay on Longer Shifts to Minimize Overtime Expense

Author: Ronald E. Lyons Date: 03/23/2010

Categories: Corporate and Business Law, Employment Law & Litigation

The issue of whether an employer can reduce the rate of compensation to its employees who choose to work extended hours has been answered in the affirmative. In a case out of the 9th Circuit, the Court said that such actions were permissible by the employer as a strategy to control overtime expense so long as the overall compensation meets the wage requirements under the Fair Labor Standards Act (FLSA). The Court ruled that the employer did not violate the FLSA when it implemented a “budget neutral” pay scheme for employees working longer shifts. Under the facts of this case (Parth v. Pomona Valley Hosp. Med Center), nurses were paid a lower regular rate for a 12 hour shift than for an 8 hour shift. After taking into account overtime premiums, the nurses received the same overall amount. The Court determined that so long as the regular rate was correctly calculated and the nurses were paid for overtime actually worked, that the lower rate of pay for the longer shift was permissible.

In a class action suit brought by the nurses, they argued that the lower rate of pay violated overtime requirements of the FLSA. On appeal to the 9th Circuit, the Court found that the plan to reduce the rate of pay for longer shifts created a “budget neutral” pay plan which was acceptable so long as the wages satisfied minimum wage requirements. While an employer cannot artificially set a low hourly rate upon which overtime is calculated to reduce the additional compensation that would otherwise be owed to employees, the Court in the Parth case found that reducing the hourly rate for the 12 hour shift nurses was not artificial and did not contravene the purposes of the FLSA. The Court explained that the 12 hour shift pay “provides employees more scheduling flexibility, allows them to spend less time commuting to work (since they work fewer days per week on the 12 hour shift) and ensures that the hospital does not retain an incentive to ask the nurses to work longer hours. Under the facts of the case, the nurses were paid overtime when they worked over 8 hours.

The nurses also argued that the pay scheme was unlawful because the nurses were paid different rates for the same work. Here again, however, the Court disagreed with the nurses and determined that paying different rates for different shifts is acceptable under the FLSA.