Recently, I read about a construction contractor in Los Angeles caught in the middle of litigation between its subcontractors and the city, on behalf of the subcontractor’s former employees. According to the employees, the subcontractors had allegedly promised to pay them the prevailing wage for that area of $49.00 per hour, but had only paid them $5.00 to $8.00 instead. Ultimately, the complaint focused on the subcontractors’ falsification of records and misclassification of employees, and related city and state law violations, rather than which rate was the real “regular rate” for FLSA purposes: the proper $49.00 per hour prevailing wage rate the subcontractors had promised, or the actual $5.00 to $8.00 rate they paid. But what if the employees had sought overtime based on the higher rate? Would dressing up a breach of contract claim as one for overtime under the FLSA have worked?
Recently, the Tenth Circuit answered this question in an FLSA collective action. Hundreds of current and former employees of the Jefferson County, Colorado Sheriff’s Department sued the county alleging that they did not receive the proper overtime rate under the FLSA. The dispute centered on what the employees’ true “regular rate” was for purposes of overtime calculations under the FLSA. According to the employees, they received a lower regular rate (from which the county then calculated their overtime rates) than the rate that the county promised to pay them in salary schedules it had posted. The employees claimed that their “regular rates” for the purposes of the FLSA were the promised rates, not the actual rates they received in their paychecks. The employees sued to recover the difference between the overtime payments they actually received and the overtime payments they would have received if they had received the higher, promised rate. The district court agreed with the employer that the promised rates were never made part of the budget the country had adopted and the plaintiffs had presented no facts to demonstrate some other promise to pay the higher rates, and dismissed the complaint.
On appeal, the Tenth Circuit saw through the breach of contract wolf in the FLSA sheep’s clothing, explaining that the FLSA is not “an all-purpose vehicle to resolve wage disputes between employers and their employees” and holding that the employees failed to state a claim for unpaid overtime. Back in 1944, in an early FLSA decision, the Supreme Court explained that the regular rate is based on “the hourly rate actually paid for the normal, non-overtime workweek.” Citing this case and its own precedent, the Tenth Circuit reasoned that even if the promised rates were relevant to an express or implied employment contract (perhaps to a breach of contract claim, though the court didn’t elaborate), they “are not controlling, because the regular rate is an ‘actual fact,’ rather than ‘an arbitrary label chosen by the parties.’”
Setting aside breach of contract or other equitable theories, this case illustrates the basic principle that under the FLSA, non-exempt employees are entitled to overtime pay based only on their “regular rates.” Absent a collective bargaining agreement or some other specific but rare situations, that regular rate will be based on the one an employer actually pays for straight time work, not some other promised rate.