Recent 5th Circuit Decision Sheds More Light on FLSA Requirements

On May 27, 2010, the 5th Circuit Court of Appeals issued a decision interpreting the Fair Labor Standards Act’s (FLSA) differentiation between “regular rate” and “per diem” payments. In Gagnon v. United Technisource Inc; AIS Tech Services Inc., the 5th Circuit determined the employer deliberately violated the FLSA by paying a low hourly rate with an offsetting “per diem.” The employer in Gagnon agreed to pay the employee $5.50 per hour (approximately minimum wage at that time) for “straight time” and $20.00 per hour for overtime. In addition, the employer agreed to pay the employee $12.50 for every hour he worked each week up to 40 hours per week or a maximum of $500. The employer referred to this as “per diem.”

The Court determined that pursuant to the FLSA, the employee's hourly regular rate was $18.00 ($5.50 “straight time” plus $12.50 “per diem”). As such, the employer owed the employee $27.00 per hour for overtime. Particularly important in the Court's finding that the $12.50 per hour “per diem” should be considered regular rate was the fact the “per diem” was an hourly calculation as opposed to a flat rate based on travel expenses, living expenses, etc. The Court also looked at the hourly rate of pay for similar jobs at other companies and found the hourly rate varied from $18.32 to $24.00, well above the $5.50 the employer in Gagnon paid.

Whether the employer deliberately circumvented the FLSA requirements or not, the lesson all employers should learn from Gagnon is the FLSA’s payment requirements are complicated. Many terms we commonly hear such as “salary,” “overtime,” “exempt,” and “non-exempt” have different meanings under the FLSA. A mistake in properly paying employees can cost an employer greatly down the road, especially because the FLSA permits attorney’s fees and doubling the amount the employee is owed in certain circumstances. It is always best to consult with your attorney on any and all pay practices and employee classifications (especially when you have complicated and/or unique pay practices).