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8th Cir.: Where Employer’s Change to Workweek Was Permanent, “Legitimate Business Purpose” Not Required

Abshire v. Redland Energy Services, LLC

Following an order granting the defendant-employer summary judgment, the plaintiff appealed. At issue was whether the employer’s permanent change to its workweek- for the stated purpose of reducing overtime hours worked by its employees- violated the FLSA. The lower court held that the purpose behind the employer’s change to its workweek was irrelevant, so long as the change was intended to be permanent. Affirming the award of summary judgment, the Eighth Circuit agreed.

The facts were relatively straight-forward and not in dispute. The defendant-employer changed the designation of its workweek from Tuesday-to-Monday to Sunday-to-Saturday for employees who worked 12 hour shifts for seven consecutive days from Tuesday to Monday, followed by seven days off. The change was intended to and did result in fewer hours calculated as overtime.

Initially, the court explained that an employer may pick any contiguous 168 hours as its workweek. The court then explained:

Having concluded that the FLSA does not prescribe how an employer must initially establish its “workweek” for overtime purposes, we come to the issue raised in this case—whether the FLSA limits an employer’s freedom to change an existing workweek designation. Again, § 778.105 of the Department of Labor’s regulations directly addresses the issue: “The beginning of the workweek may be changed if the change is intended to be permanent and is not designed to evade the overtime requirements of the Act.” This sentence makes one limitation clear—a change must be “intended to be permanent.” But that is not at issue here. Appellants have never challenged Redland’s contention that the May 2009 change in the oil rig operators’ workweek was intended to be permanent. Rather, Appellants argue that Redland’s change violated § 207(a)(1) because it was made for the purpose of reducing the number of hours in their normal work schedules that must be paid at the overtime rate, and therefore it was “designed to evade the overtime requirements of the Act.”

The caution that a workweek change may not be designed to evade the requirements of § 207(a)(1) has been part of the Department of Labor’s interpretive pronouncements since the FLSA was first enacted. See Department of Labor, Interpretative Bulletin No. 4, ¶ 3 (Nov. 1, 1938), cited in Harned, 192 S.W.2d at 380. It was an understandable caution in advising how this initially controversial Act would be construed and applied. Many early FLSA cases dealt with payroll plans devised to evade the Act’s new payroll expense obligations. For example, in an early case applying § 207(a), the Supreme Court invalidated a “split-day” compensation plan “so designed as to deprive the employees of their statutory right to receive [overtime pay] for all hours worked in excess of the first regular 40 hours.” Walling v. Helmerich & Payne, Inc., 323 U.S. 37, 40, 65 S.Ct. 11, 89 L.Ed. 29 (1944). That decision is now codified in the regulations. See 29 C.F.R. § 778.501(a). But the Department has never interpreted its general caution that changes to the workweek may not be “designed to evade the overtime requirements,” nor has it attempted to clarify what constitutes “evasion.”

Citing an Illinois Minimum Wage Law case as authority, the court rejected the plaintiff’s assertion that an employer may not make a change to its workweek absent a “legitimate business purpose” (i.e. just to reduce overtime hours/pay):

The precise issue before us was presented, and Appellants’ contention persuasively rejected, in a case applying overtime requirements of the Illinois Minimum Wage Law for which administrative regulations including 29 C.F.R. § 778.105 had been adopted. Kerbes v. Raceway Assocs., LLC, –––Ill.App.3d ––––, 356 Ill.Dec. 476, 961 N.E.2d 865, 870 (2011). In Kerbes, the racetrack employer changed its designated workweek so as to split racing event weekends into two different workweeks, eliminating overtime pay for its part-time hourly employees. Concluding that an employer’s right to establish a workweek was “well-settled” by the above-cited cases, the court further concluded the racetrack’s modification of its workweek did not violate the overtime requirements of the FLSA…. [T]he FLSA does not require a workweek schedule that maximizes an employee’s accumulation of overtime pay. Thus, a schedule whereby an employee’s actual work schedule is split between two workweeks does not violate the federal legislation. If such a schedule does not itself violate the FLSA, we fail to see how a change to such a schedule could be viewed as having been “designed to evade the overtime requirements of this Act.” Id., 356 Ill.Dec. 476, 961 N.E.2d at 872. We agree with this reasoning.

Appellants argue that a workweek change intended to reduce hours of overtime earned is contrary to the purposes of the FLSA’s overtime requirements and is therefore “designed to evade” those requirements. We disagree. Appellants’ assumption that an original purpose of the FLSA was to maximize the payment of overtime rates is contrary to more contemporary authority. See Missel, 316 U.S. at 578, 62 S.Ct. 1216 (“In a period of widespread unemployment and small profits, the economy inherent in avoiding extra pay was expected to have an appreciable effect in the distribution of available work.”). Thus, an employer’s effort to reduce its payroll expense is not contrary to the FLSA’s purpose. Moreover, Christensen v. Harris Cnty., 529 U.S. 576, 585, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000), clearly teaches that courts may not imply a prohibition that cannot be found in the Act. Cases involving other FLSA requirements illustrate this principle. For example, in Lamon v. City of Shawnee, 972 F.2d 1145, 1153 (10th Cir.1992), the court concluded that a public employer’s new workweek adopted to take advantage of an FLSA amendment did not violate the Act “[e]ven if [the employer's] sole purpose were to avoid the prospect of paying overtime rates.” And in Morehead v. City of Pearl, 763 F.Supp. 175, 176 (S.D.Miss.1990), the court noted that a scheduling change intended to reduce overtime hours was not “an evasion” of the overtime requirements; it was “straight-up avoidance” of overtime that the FLSA does not require be paid.

We reject Appellants’ contention that an employer’s permanent change in the designated workweek violates § 207(a)(1) unless it is justified by a “legitimate business purpose.” So long as the change is intended to be permanent, and it is implemented in accordance with the FLSA, the employer’s reasons for adopting the change are irrelevant. Accordingly, whether Redland in fact adopted the change in question to achieve administrative efficiencies in calculating and paying wages and overtime, and if so, whether that was a “legitimate business purpose” justifying the change, were not genuine disputes of material fact that precluded the grant of summary judgment in favor of Redland. Fed.R.Civ.P. 56(a).

Thus, the Eighth Circuit affirmed the judgment for the defendant.

Given the clear language of the CFR regulation that an employer’s change to a workweek must not be “designed to evade the overtime requirements of the [FLSA],” and the defendant’s acknowledgement here that its change was explicitly made to reduce overtime pay to its employees, while having them work the same number of hours, the Eighth Circuit’s holding is somewhat curious. At least for now however, the Eighth Circuit is the only Circuit to have pondered the issue.

Click Abshire v. Redland Energy Services, LLC to read the entire Opinion.

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