Source: https://flsaovertimelaw.com/tag/fifth-circuit/
Timestamp: 2019-04-21 00:24:29+00:00

Document:
This case was before the Fifth Circuit on the Defendants’ appeal from the district court’s judgment awarding Plaintiff backpay, liquidated damages, and attorney’s fees and costs under the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 20119, against Defendants.
“UTI/AIS argue that their payment scheme does not violate the FLSA because the FLSA only requires employers to pay overtime at a rate of time and a half, and UTI/AIS paid Gagnon overtime at a rate more than three times his base pay. UTI/AIS also argue that Gagnon’s per diem reasonably approximated his reimbursable expenses and should therefore be excluded from the determination of Gagnon’s regular rate for the purposes of overtime pay. According to UTI/AIS, “[i]t cannot be argued … [that] the per diem was a ploy to avoid paying Gagnon overtime compensation.” We disagree.
The FLSA requires that non-exempt employees who work more than forty hours in a work week must be paid one and one-half times their “regular rate” of pay. 29 U.S.C. § 207(a)(1). The FLSA broadly defines “regular rate” as the hourly rate actually paid the employee for “all remuneration for employment.” 29 U.S.C. § 207(e); see also Walling v. Helmerich & Payne, Inc., 323 U.S. 37, 42 (1944). “The regular rate by its very nature must reflect all payments which the parties have agreed shall be received regularly during the workweek, exclusive of overtime payments.” Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 461 (1948). The “regular rate” becomes a mathematical computation once the parties have decided on the amount of wages and the mode of payment, which is unaffected by any designation to the contrary in the wage contract. Id. The “regular rate” is not an arbitrary labelit is an actual fact. Id.
Here, UTI/AIS have tried to avoid paying Gagnon a higher “regular rate” by artificially designating a portion of Gagnon’s wages as “straight time” and a portion as “per diem.” Although per diem can be excluded from an employee’s regular rate, 29 U.S.C. § 207(e)(2); see also 29 C.F.R. § 778.217(b), the “ ‘regular rate’ of pay … cannot be left to a declaration by the parties as to what is to be treated as the regular rate for an employee; it must be drawn from what happens under the employment contract.” 29 C.F.R. § 778.108 (citing Bay Ridge Operating Co., 334 U.S. at 465). The Department of Labor has recognized that when, as here, 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.
Furthermore, we are suspicious of UTI/AIS’s claims that Gagnon’s employment contracts were not a scheme to avoid paying overtime. It is difficult to believe that a skilled craftsman would accept a wage so close to the minimum wage when the prevailing wage for similarly skilled craftsmen was approximately three times the minimum wage. We are similarly troubled by the fact that the combined “straight time” and “per diem” hourly rates approximately match the prevailing wage for aircraft painters. Further, it is suspect that a “raise in all pay” was effectuated by increasing the hourly “per diem” rate rather than the “straight time” rate. Finally, we can conceive of no reason why a legitimate per diem would vary by the hour and be capped at the forty-hour mark, which not-so-coincidentally corresponds to the point at which regular wages stop and the overtime rate applies.
We find this case analogous to other cases in which employers have sought to artificially lower an employee’s regular rate by mischaracterizing a portion of it as a bonus or where employees were paid low “straight rates” for the first hour or two worked-usually set around minimum wage-after which they earned one and one half times the straight rate, and were consequently paid no premium for their actual overtime work. See Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 425 (1945); see also 29 C.F.R. § 778.502.
Not discussed here, the Court also rejected Defendants’ claim that it was entitled to prevail on its counterclaims, based on the same facts. To read the entire decision click here.

References: § 207
 § 207
 v. 
 v. 
 § 207
 § 778
 § 778
 v. 
 § 778