The Fair Labor Standards Act (FLSA) requires that non-exempt employees who work more than forty hours in a work week by paid an overtime rate of one and one-half times their regular rate of pay. In suits for unpaid overtime compensation, a central issue, therefore, is determining the employee's "regular" wage rate. In Gagnon v. United Technisource, Inc., No 09-20098 (May 27, 2010), the Fifth Circuit decided whether "per diem" payments to an employee should be included in calculating his regular wage rate.
Gagnon, a skilled and experienced craftsman, contracted with United Technsource, Inc. (UTI) to perform prepping and painting work on aircraft for $5.50 per hour "straight time" plus a "per diem" of $12.50 per hour for each hour worked each week up to 40 and an overtime rate of $20.00 per hour. After about a year, Gagnon's "per diem" and "overtime" rates were raised by $1 per hour. Gagnon later sued for unpaid overtime and the issue was whether the "per diem" payments should be included in and considered as part of his regular wage rate.
The court ruled that the "per diem" payments must be considered part of Gagnon's regular hourly wage rate. First, both federal regulations and precedent require that determination of an employee's regular wage rate be determined by what actually happens, not by the parties' agreed designations. Second, the Department of Labor has recognized that when the amount of per diem varies with the amount of hours worked, the per diem payments are part of the regular rate in their entirety. Third, the structure of the straight time, per diem and overtime payments were suspicious since Gagnon's "straight" time rate was so close to the minimum wage rate when similar craftsmen were being paid $20 per hour and over. Finally, the court observed that the ruse was similar to schemes where part of an employee's wage rate was considered a "bonus" or where employees were paid low "straight rates" for the first hour or two worked, then paid one and one-half times the so-called straight rate after that and, as a consequence, paid no overtime.
