Seyfarth Synopsis: The Ninth Circuit recently joined the Second, Fourth, Eighth, and D.C. Circuits in holding that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole, rather than each individual hour within the workweek.
Yes, Virginia, contrary to the contentions of some plaintiffs' counsel, the FLSA does allow for flexibility in how employers compensate their employees. In the recent case of Douglas v. Xerox Business Services, the Ninth Circuit rejected the argument that the FLSA measures minimum-wage compliance on an hour-by-hour basis; instead, the Ninth Circuit copied the other circuits that have addressed the issue and concluded that minimum-wage compliance is measured by weekly per-hour averages.
The plaintiffs—customer service representatives at call centers run by Xerox—were paid under what the court described as a "convoluted" and "mind-numbingly complex payment plan" where employees earned different rates depending on the task and the time spent on that task. In reality, the pay arrangement was not terribly difficult to discern. For certain defined activities like trainings and meetings, employees received a flat rate per hour; for time spent managing inbound calls, employees were paid a variable rate calculated based on a matrix of qualitative and efficiency controls; all remaining tasks had no specific designated rate.
At the end of each workweek, Xerox totaled all amounts earned (for defined activities and for activities paid at the variable rate) and divided that total by the number of hours worked that week. If the resulting average hourly wage equaled or exceeded minimum wage, Xerox did not pay the employee anything more. But if the average hourly wage fell below minimum wage, Xerox gave the employee subsidy pay to bump the average hourly wage up to minimum wage.
In the plaintiffs' view, because Xerox averaged across a workweek, it compensated above minimum wage for some hours and below minimum wage for others, thereby violating the FLSA. Plaintiffs sought back pay for each hour they worked at sub-minimum wage because, they claimed, the FLSA bars an employer from paying below minimum wage for a single hour.
The Ninth Circuit disagreed and concluded that the relevant unit for determining minimum-wage compliance under the FLSA is the workweek as a whole and, as such, Xerox properly compensated employees for all hours worked by using a workweek average to arrive at the appropriate wage.
Although the FLSA's "text, structure, and purpose" provided "few answers" to the per-hour versus per-workweek question, the Department of Labor's longstanding per-workweek construction and decisions by sister circuits shaped the Ninth Circuit's holding. The Department of Labor adopted the per-workweek measure just over a year and a half after the FLSA was passed in 1938 and has never deviated from this understanding: "[T]he workweek [is] the standard period of time over which wages may be averaged to determine whether the employer has paid the equivalent of [the minimum wage]."
Courts—including every circuit that has addressed the issue—have overwhelmingly followed the Department of Labor's guidance. The Second Circuit first embraced the per-workweek construction in 1960 in United States v. Klinghoffer Brothers Realty Corp., explaining that "the [c]ongressional purpose is accomplished so long as the total weekly wage paid by an employer meets the minimum weekly requirements of the statute." The Fourth (Blankenship v. Thurston Motor Lines, Inc.), Eighth (Hensley v. MacMillan Bloedel Containers, Inc.), D.C. (Dove v. Coupe), and now Ninth Circuits have also agreed that minimum wage compliance is measured by the workweek as a whole. No circuit has taken a contrary position.
As is often the case, plaintiffs relied heavily on the fact that the "FLSA is remedial legislation" that "must be construed broadly in favor of employees" (if you are a frequent reader of this blog you are aware of our feelings on this language as described in detail here) and argued that a per-hour approach is necessary to ensure workers are protected from wage and hour abuses. But, as the Ninth Circuit pointed out, there is no empirical evidence that broad application of the workweek standard disadvantages employees in any way. As this case makes clear, even if employees (or their attorneys) are unhappy with an employer's pay plan, there is no violation of the FLSA's minimum wage provision so long as an employee's total compensation for the week divided by total hours worked results in a rate that is at or above the minimum wage.
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