Fourth Circuit Finds Blended Rate of Non-Overtime and Overtime Hours to Violate FLSA

The U.S. Court of Appeals for the Fourth Circuit found that an employer violated the Fair Labor Standards Act by using a blended rate for all hours worked to calculate overtime, rather than the actual hourly rate for all hours worked.

In U.S. Dept. of Labor v. Fire & Safety Investigation Consulting Servs., LLC, the employer’s consultant employees were scheduled to work a “hitch,” meaning 12-hour days for 14 consecutive days and then 14 days off, totaling 168 hours. They did not always work a full “hitch.” Employees working a full “hitch” received a fixed payment for the hours worked that allegedly incorporated a regular rate for the first 40 hours in the workweek and an overtime rate at time and a half for the next 44 hours in that same  workweek. However, if the employee worked less than 168 hours, he was paid by dividing the fixed payment by 168 and then multiplying that sum by the actual number of hours worked.

The Fourth Circuit first turned to Supreme Court precedent. The Supreme Court has held that, in determining an employee’s regular hourly rate, courts should examine whether the blended rate applies across all hours worked. This is particularly telling where the blended rate is paid even when no overtime is worked, and supports the determination that the so-called blended rate is actually the regular hourly rate.

In addition, the FLSA regulations permit fixed sum payments for overtime, but only where employees work a fixed number of overtime and non-overtime hours. It does not apply where the overtime hours fluctuate, as in this case. The methodology of payment in this case resulted in employees receiving a blended rate of overtime at $29.76, rather than the actual rate of $35.37, which violated the FLSA.