Federal Law Permits Reduction in Hourly Rate for 12 Hour Shift
Many employers have long utilized the alternative workweek arrangements available under state and federal law to avoid the payment of overtime. Such arrangements typically allow employees to enjoy the flexibility of working fewer than five days per week while permitting employers to avoid the significant overtime liability that usually accrues after an employee works eight hours per day. In order to take advantage of alternative workweek arrangements, California employers must comply with significant administrative regulations. For example, the alternative workweek arrangement must be enacted only after a secret vote of affected employees. A failure to adhere to all of these requirements subjects the employer to overtime liability for all employees working the improperly enacted workweek arrangement.
Most California employers are subject to both state and federal wage and hour laws, including those laws that apply to alternative workweek arrangements. A recent federal decision by the Ninth Circuit, the court responsible for federal appeals in California has recently issued a ruling which is favorable to employers in this area.
In a decision entitled Parth vs. Pomona Valley Hospital Medical Center, the employer and the employees agreed to a reduced base hourly rate with the result being that the employees would earn the same amount per pay period regardless of whether they worked an eight hour shift of the alternative twelve hour shift. The purpose of the arrangement was to neutralize the additional overtime costs for those employees who wished to work a twelve hour shift.
A number of the employees who had agreed to the arrangement later filed a class action claiming that the employer's reduction of their hourly rate was really a subterfuge to avoid payment of requisite overtime and thus constituted a violation of the federal wage and hour laws, the Fair Labor Standards Act ("FLSA")
The Ninth Circuit, the federal court of appeal, concluded that the employer "may alter the regular rate of pay in order to provide employees a schedule they desire" without violating the FLSA.
Despite the fact that this decision provides employers with a great deal of flexibility, it is important for all to remember that it was rendered only under federal law. It is unclear whether the California wage and hour authorities, the Department of Labor Standards Enforcement ("DLSE") would agree. In fact, in light of a California law, California Labor Code Section 511 (c) which prohibits an employer from reducing an employee's regular rate of hourly pay as a result of the adoption of an alternative workweek schedule, it is possibler that a challenge before a California court would reach a different result.
The morale of the story is that any employer contemplating an alternative workweek arrangement should do so cautiously. As long as all of the requirements are met, the cost savings can be substantial and well worth the administrative hassles. Done improperly, however, the downside risk is substantial. Given the uncertainty in the law, employment counsel should be consulted.
