Labor & Employment Law

The Legality Of Reducing Wage Rate To "Avoid" Overtime: The Supreme Court May Decide

By Mark Tabakman

I have believed that it is not illegal form an employer to reduce the wage rate of an employee, even if the objective is to save overtime costs or where as DOL audit has turned up liability and the employer wishes to respond by effecting a reduction in wage rates so the employer's labor costs do not increase. Not, it seems, that my theory may get a grand 'test' in the US Supreme Court.

In a case arising in the Ninth Circuit (California), a plaintiff has petitioned the Supreme Court to hear her case and reverse the decision that the hospital-employer did not violate the Fair Labor Standards Act when it reduced the hourly rates of Nurses so that these reductions would 'balance out' or offset anticipated overtime costs for those employees who were scheduled to work twelve-hour shifts. The case is entitled Parth v. Pomona Valley Hospital.

The plaintiff claims that this ruling essentially negates or nullifies the application of the FLSA. The plaintiff alleges that the Ninth Circuit has undermined the 'intent' of the statute by providing employers with a loophole to evade the so-called proper payment of overtime. If the employer can lower the rate and then pay time and one-half on that reduced rate, argues the plaintiff, the true intent of the FLSA and its 'spirit' is not being complied with.

The dispute had its genesis in requests made by nurses more than twenty years ago that they be allowed to work twelve hour shifts, rather than eight hour days, to cut down on their commuting time and to allow more leisure time for the nurses. The hospital agreed to this, but under California law, any hours worked in excess of eight in a day are deemed overtime hours. In response, the hospital cut the hourly rate so that, with the computation of the four overtime hours, the hospital's labor costs had not increased.

In the Petition, the plaintiff claims that this policy of the hospital 'immunized the hospital from the additional labor costs associated with overtime.' In contrast, the Ninth Circuit had ruled that 'there is no justification in the law and no public policy rationale' for declaring the hospital's policy (which was later embodied in a labor contract between hospital and the nurse union).

I believe this is legal. Certainly, in my view, it is legal if the employees voluntarily agree to the procedure, as they did herein. I also believe the employer, upon adequate notice to the affected employees, may do this unilaterally.

The Supreme Court will tell us, if it accepts the Petition. If not, then the Ninth Circuit decision will stand, a decision that approved of the procedure.

Full post as published by Wage & Hour - Development & Highlights on March 08, 2011 (boomark / email).