Employment Law Daily Minimum wage compliance based on entire workweek, not individual hour within workweek
Friday, November 17, 2017

Minimum wage compliance based on entire workweek, not individual hour within workweek

By Ronald Miller, J.D.

On an issue of first impression in the Ninth Circuit, the appeals court held that the relevant unit for determining minimum wage compliance under the FLSA is the workweek as a whole, not the individual hour within the workweek. In this instance, Xerox used subsidy pay to ensure that its call center employees always received the appropriate minimum wage for the workweek. Although the statutory text and context of the FLSA did not conclusively answer whether the workweek is the appropriate measure of the minimum wage, the appeals court was persuaded by the history of administrative and judicial decisions that have adopted the per-workweek approach since the passage of the Act in 1938. Accordingly, the Ninth Circuit joined its sister circuits and embraced the per-workweek measure (Douglas v. Xerox Business Services, LLC, November 15, 2017, McKown, M.).

Two customer service reps at a call center operated by Xerox filed a collective action claiming the employer’s payment plan violated the FLSA’s minimum wage and overtime provisions. Under Xerox’s complex payment plan, employees earned different rates of pay depending on the task and the time spent on that task. For certain defined activities (such as trainings and meetings), employees received a flat rate of $9.04 per hour. Time spent managing inbound calls was paid a variable rate calculated based on a matrix of qualitative controls (customer satisfaction) and efficiency (length of calls). The wage ranges from $0.15 to $0.25 per minute.

Subsidy pay. All remaining tasks have no specific designated rate. At the end of a workweek, Xerox calculates the amounts earned for defined activities and for activities paid at the variable rate and divides that total by the number of hours worked that week. If the resulting hourly wage equals or exceeds the minimum wage, Xerox does not pay the employee anything more. However, if the ratio falls below the minimum wage, Xerox gives the employee subsidy pay to bump the average hourly wage up to the minimum wage. Subsidy pay ensured that employees always receive the appropriate minimum wage for the workweek.

Averaging. The employees claimed that the FLSA measures compliance on an hour-by-hour basis and does not allow averaging over a longer period. In their view, because Xerox averaged across a workweek, it compensated above the minimum wage for some hours and below the minimum wage for others, thereby violating the FLSA. After first rejecting Xerox’s per-workweek approach, the district court, on reconsideration, held that workweek averaging was appropriate and that Xerox did not violate the FLSA. Thereafter, the matter was certified for interlocutory appeal.

Statutory interpretation. The Ninth Circuit observed that this dispute presented a pure question of statutory interpretation—whether use of the workweek as the unit of measure for gauging minimum wage compliance was permissible. Here, the Department of Labor’s longstanding per-workweek construction and the steady stream of circuit cases that have adopted that understanding persuaded the Ninth Circuit to adopt that measure.

Although the FLSA sets the minimum wage that employees must be paid each hour, it does not definitively describe the computation period or say that the only permissible measure is the hour. However, by using the phrase “in any workweek,” the text signals that something other than an hour could be a relevant measure. As a textual and contextual matter, the minimum-wage provision can bear both the per-hour and per-workweek meaning.

DOL construction. Because the traditional tools of statutory construction did not conclusively resolve the per-hour versus per-workweek question, the appeals court turned to the DOL’s interpretation—the agency “established the workweek as the measuring rod for compliance at a very early date.” Such a “longstanding administrative construction” counsels in favor of interpreting a statute to support the construction. The DOL adopted the per-workweek measure just over a year and a half after the statute was passed in 1938. Moreover, the agency’s website states in no uncertain terms that “the workweek is the basis on which determinations of compliance with the wage payment requirements of the FLSA are made.”

Moreover, courts have overwhelmingly followed the agency’s guidance. The Second, Fourth, Eighth, and D.C. Circuits have embraced the per work-week construction. No circuit has taken a contrary position. Thus, the Ninth Circuit found no reason to depart from the sound reasoning of the other circuits.

Observing that businesses subject to the FLSA often operate in multiple jurisdictions, and could reasonably rely on administrative and judicial guidance in structuring their payment schemes, the Ninth Circuit concluded that it would be burdensome and impractical to upset those practices by imposing different requirements in different jurisdictions. Thus, the appeals court ruled in favor of consistency. Additionally, adoption of the per-workweek approach was also reinforced by the fact that Congress has done nothing to overturn or disapprove of this clearly articulated position. Accordingly, under the workweek standard, Xerox complied with the minimum wage provisions.

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