A recent court case involving a company in Arkansas could have a ripple effect on small businesses' employee overtime policies. Redland Energy Services, a natural gas drilling company, did not violate the Fair Labor Standards Act when it changed what it considered a workweek, resulting in employees’ overtime hours being split between two pay periods—thus, allowing them fewer hours designated as overtime.
A Change in the Workweek
Most of the employees of Redland Energy Services work a regular Monday-to-Friday schedule, with weekly overtime calculated on a regular Sunday-to-Saturday week. But the company’s drill operators worked 12-hour shifts on seven consecutive days, from Tuesdays through Mondays, then received seven days off. The company had calculated weekly overtime based on that Tuesday-to-Monday week, but in May 2009, the company switched to a Sunday-to-Saturday week, making all employees’ workweeks consistent.
The company said this swap was made not just to save money by cutting down on the number of hours of overtime it would have to pay drill operators, but to trim administrative costs, letting Redland calculate overtime for all its employees on the same weekly basis.
The drill operators sued, saying changing the workweek just to reduce the overtime paid was illegal under the FLSA. (They claimed the administrative cost savings was just a pretext.)
But the court rejected the argument, including the claim that the FLSA requires a “legitimate business purpose” for adopting a new workweek. The court said in Abshire v. Redland Energy Services that as long as the change is intended to be permanent and otherwise complies with the FLSA, it doesn’t matter why the employer changed it. On appeal in late October, the Eighth Circuit affirmed the ruling, pointing to Section 778.105 of the Department of Labor’s regulations, which states that “the beginning of the workweek may be changed if the change is intended to be permanent and is not designed to evade the overtime requirements of the act.”
Essentially, it’s not a company’s responsibility to maximize overtime—only to pay it when it is required, the court said.
Federal vs. State Law
The Orrick firm's employment law and litigation blog noted, though, that companies need also to follow state law, which may limit their ability to change workweeks. California’s labor code, for example, prevents employers from splitting up a workweek to avoid paying overtime if avoiding overtime pay is the only reason for the choice of workweek. According to the blog, “In Seymore v. Metson Marine, Inc., 194 Cal. App. 4th 361 (2011), on facts similar to Abshire, the court recognized that California Labor Code section 510 mandates employees be paid an overtime premium for all hours worked on the seventh consecutive day of work. The court held that the employer’s selected workweek violated Section 510 because the employer did not have any legitimate business reason for selecting the days in the workweek; rather, the workweek was set solely to reduce its overtime pay obligations.”
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