On April 18, 2014, the First Circuit Court of Appeals, which hears appeals for both New Hampshire and Massachusetts Federal Cases, noted in the case of Eric Newman and Nestor Patague v. Advanced Technology Innovation Corp. that the regular hourly rate for purposes of calculating time and a half overtime pay is not merely what the employer considers the regular rate.
Under the Fair Labor Standards Act, employees that do not fit certain exemptions under the act who are required to work more than 40 hours in a week must be paid overtime at a rate of at least 1½ times their regular rate of pay. The two plaintiffs in the above case contended that their employer wrongfully labelled part of their regular hourly rate as “per diem” and excluded the per diem when calculating the rate of overtime thus depriving them of overtime pay. Each plaintiff signed a consulting agreement and offer letter with Advanced Technology which listed an hourly wage, an overtime rate of more than 1½ times that hourly wage, and a per diem expense reimbursement in light of their remote work assignments. Newman’s agreement set an hourly wage at $35.32 per hour, overtime at $60.00 per hour, and a weekly per diem of no more than $987.00. Patague’s agreement set his hourly rate at $42.37, overtime at $63.56, and a weekly per diem of no more than $705.00 with the both of them having a maximum per day expense reimbursement of $141.00. The per diem, if calculated by the hour, was calculated at $24.68 for Newman and $17.63 for Patague which made up the difference between their regular rate in each of their contracts and their supposed promise hourly figure of $60.00. They contended that their per diem should count as part of their regular rate and therefore when they worked over 40 hours in any given week, they should be paid 1½ that wage; meaning at $90.00 per hour.
The First Circuit Court noted that a regular rate must reflect all payments which the parties have agreed shall be received regularly during the work week exclusive of overtime payment and not based upon an arbitrary label chosen by the parties, but the actual facts. Given the fact that Advanced Technology changed the per diem reimbursement based upon the hours actually worked, reducing the maximum amount when the hours were less than 40, the Court found that consistent with the US Department of Labor’s handbook on the topic, employers are not permitted to discount a per diem as a reduction of a fixed amount for each missing hour in a weekly total. Since Advanced Technology had done so, that per diem was part of the regular rate for overtime to be calculated. The First Circuit Court reversed the District Court judge’s decision granting summary judgment for Advanced Technology and entered summary judgment as to liability for the plaintiff remanding the case to the District Court judge for proceedings on damages premised on Advanced Technology having already been found to be liable for violation of the federal overtime law by not considering the per diem reimbursement payment as part of the regular rate to determine 1½ times that rate for overtime pay.
If the expense reimbursement was not based upon a formula, but based upon proven actual expenses which they were reimbursed upon documented work-related charges the employees incurred as a result of their work, there would not have been the issue of overtime on that expense reimbursement. However, if an employer calls a payment to an employee expense reimbursement, yet increases or decreased it based upon hourly work, the employer certainly runs the risk that the payment to the employee will be considered wages under several state and federal laws including, but not limited to, federal overtime law.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].