The U.S. Court of Appeals for the Ninth Circuit in 2009 dismissed a registered nurse’s claim that a California hospital violated the Fair Labor Standard Act’s overtime provisions when it used different base hourly rates to calculate regular rates of pay depending on whether RNs chose to work an 8-hour or 12-hour shift.  Thus, the Ninth Circuit determined that employers can negotiate with employees reduced base hourly rates to find the regular rate of pay upon which overtime wages are calculated.  The resulting rate must equal or exceed the minimum wage, the employees must agree to the rate reduction, and the reduced rate must have been in place for some substantial period of time. Of course, an employer cannot jump from rate to rate depending upon whether overtime was worked.   The Ninth Circuit’s decision stands following U.S. Supreme Court’s denial of the request for review. Parth v. Pomona Valley Hosp. Med. Ctr., No. 10-1041, cert. denied, 5/23/2011. 

In Parth, for many years, the Hospital offered the option of a 12-hour shift. RNs who opted for it received: (a) a lower hourly base rate of pay than those who worked the 8-hour shift for the first 8 hours of work; (b) overtime at 1.5 times the regular rate of pay for more than 8 hours of work; and (c) twice the regular rate of pay for hours worked in excess of 12 in one shift.  The plaintiff and other RNs opted for the 12-hour shift (and corresponding reduced regular rate of pay).   They each signed an individual agreement that later was incorporated into a collective bargaining agreement after the Hospital became unionized. The RN sued, alleging the use of different base hourly rates depending on length of a shift violated the FLSA. 

The Ninth Circuit dismissed the RN’s claim. It found the FLSA allows employers and employees to contract for a new wage arrangement any time they choose as long as the rate exceeds the statutory minimum wage rate and the compensation plan “properly incentivizes [the Hospital] from overworking its nurses.”  The RN appealed to the Supreme Court, claiming the payment scheme negated the statutory purpose of the FLSA. In opposition, the Hospital pointed out, inter alia, a series of U.S. Department of Labor opinion letters established that a reduced rate is not an “artifice or subterfuge” to circumvent the FLSA where (1) employees agree to the reduced rate; (2) the rate has been in place for a “substantial length of time”; and (3) the rate “equals or exceeds the minimum wage.”  The Supreme Court declined to review the case.

*          *          *

 In addition to the federal wage-hour law, employers must consider the requirement of relevant state wage-hour law. Some state wage laws, like newly-enacted Section 195.1 of the New York Labor Law, mandate written notice of the rate that will be paid. Therefore, negotiated rates generally should be transparent to all parties and duly documented.  This is critical to administration of the agreement, not to mention providing a defense to allegations of non-compliance with the law. 

Thanks to Joshua Rudin, Summer Law Clerk, for his assistance in preparing this post.