Reviving a security guard’s claim for overtime pay, the Eleventh Circuit Court of Appeals recently reiterated that employers may not pay employees an artificially low regular rate of pay to avoid paying the proper amount of overtime. Thompson v. Regions Sec. Servs., Inc., 67 F.4th 1301 (11th Cir. 2023). The Eleventh Circuit oversees the federal courts in Alabama, Georgia, and Florida.

Background

Plaintiff David Thompson worked as a security guard for Regions Security Services, Inc. (“Regions”). At the beginning of his employment, Thompson typically worked 40 hours per week at a rate of $13.00 per hour. However, beginning in early 2019, Regions began scheduling him for about 20 additional hours per week. For the first six to seven months of this new schedule, Regions continued to pay his regular rate of $13.00 per hour which, for the additional hours beyond 40 per week, corresponded to an overtime rate of $19.50, as required under the Fair Labor Standards Act (FLSA) (i.e., 1.5 times the regular rate for each hour worked beyond forty in a workweek).

However, in mid-July 2019, Regions inexplicably reduced Thompson’s regular hourly rate to $11.15, with a corresponding hourly overtime rate of $16.73. For the next eleven or so months, Thompson worked between 55 and 75 hours a week at this reduced hourly rate. Regions then returned him to a 40-hour per week schedule and increased his regular rate to its original $13.00 per hour.

Thompson subsequently filed suit against Regions, alleging that the reduction in his hourly rate was an attempt to avoid paying him the full amount of overtime he was due during the majority of the time his overtime hours were significantly increased, in violation of the FLSA. On motion by Regions, the district court dismissed Thompson’s lawsuit on the pleadings.

The Eleventh Circuit Decision

Thompson appealed and the Eleventh Circuit reversed. First, the Court of Appeals noted that the outcome turned on the meaning of the term “regular rate” which, under the FLSA, is the hourly rate for all non-excludable compensation that an employee receives for a 40-hour workweek. Here, arguably, Thompson had two different hourly rates – $13.00 and $11.15 – that could qualify as his regular rate.

The Eleventh Circuit then turned to the Department of Labor (DOL)’s FLSA regulations for further guidance. Most pertinently, Section 778.500 provides that an employee’s regular rate cannot “vary from week to week inversely with the length of the workweek.” Citing to an opinion from a sister circuit court, the Court of Appeals 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” (quoting Brunozzi v. Cable Commns, Inc., 851 F.3d 990, 997 (9th Cir. 2017)). 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.

Here, it appeared that Thompson’s regular rate consistently remained at $13.00 per hour until, several months after he began working substantial overtime hours, the Company suddenly reduced his hourly rate with no obvious explanation. Although Regions asserted that it changed Thompson’s regular rate to accommodate his requested scheduling modifications, Thompson plausibly had suggested that instead the Company did so to avoid paying as much overtime during the eleven-month period when he worked significant overtime hours. Because a district court, when reviewing a motion for judgment on the pleadings, must accept the facts alleged in the complaint as true and view them in the light most favorable to the plaintiff, an issue of material fact remained as to the real reason for the reduction in Thompson’s hourly rate. Thus, the grant of dismissal was reversed and the case remanded.

The Takeaway

As the Eleventh Circuit’s decision highlights, an employer may not artificially manipulate an employee’s regular rate in an effort to reduce or eliminate overtime pay, without running afoul of the FLSA (or comparable state law).

Gookjin (Gray) Jeong contributed to this article.