Appellate Court Rejects ‘Overtime Gap Time’ Claims Under FLSA

Takeaway: This ruling is significant for employers in the 3rd Circuit. In addition to shutting down the possibility of overtime gap time claims within its jurisdiction, the court clarified that employers’ burden of proof in establishing an employee’s exempt status is less onerous than previously thought. However, the growing split among circuits on the issue of overtime gap claims poses obstacles for multistate corporations, which must deal with conflicting precedent in various circuits in addition to differing state fair labor laws. Employers should closely examine their practices to ensure accurate recordkeeping, calculation of the regular rate of pay, and payment for all hours worked.

The Fair Labor Standards Act (FLSA) does not provide a remedy for employees to recover “overtime gap time,” or unpaid straight-time hours worked in a week where the employee also logged overtime hours, the 3rd U.S. Circuit Court of Appeals held. This decision, a significant development for employers, expands an existing split among federal appellate courts, with the 4th Circuit holding overtime gap-time claims are viable under the FLSA and the 2nd and 3rd Circuits rejecting such claims.

Toolkit: Smart Strategies for Overtime Management

The U.S. Department of Labor (DOL) investigated a nursing home and long-term care management company and filed suit against it in 2018 on behalf of nearly 6,000 employees, alleging the employer failed to maintain adequate and accurate wage and hour records. The DOL also claimed the company failed to compensate employees at the appropriate rate and for the actual number of hours worked in violation of the FLSA. 

The federal district court found that the company failed to maintain accurate records of hours worked and wages paid, partially due to a defective time clock system, and instead paid employees for their scheduled hours rather than hours worked. The company also miscalculated employees’ overtime rates and miscalculated employees’ regular rate of pay by failing to include shift differentials, bonuses, and other additional pay as required under the FLSA, the district court said, characterizing these mistakes as systemic errors. Finally, the court determined some employees were misclassified as exempt from FLSA’s overtime requirements. The court found in favor of the DOL and awarded nearly $36 million in damages, including an award for the company’s nonpayment of overtime gap time wages. 

How-To Guide: How to Calculate Overtime Pay

On appeal, the 3rd Circuit first addressed whether claims for overtime gap time are recognized under the FLSA. The court explained that gap time usually refers to time that 1) is not covered by the FLSA’s overtime provisions because it does not exceed the overtime limit, and 2) to time that is not covered by the statute’s minimum wage provisions because, even though it is uncompensated, the employees are still being paid a minimum wage when their salaries are averaged across their actual time worked. The 3rd Circuit has previously held that “pure gap time claims — straight time wages for unpaid work during pay periods without overtime — are not cognizable under the FLSA, which requires payment of minimum wages and overtime wages only.”

The court, now considering overtime gap time claims in which an employee exceeded the overtime threshold but didn’t receive pay for all nonovertime hours worked held that the FLSA does not provide a remedy. The FLSA obligates employers to pay nonexempt employees a minimum wage and overtime pay for hours worked in excess of 40 hours per workweek, the court stated, adding that the text does not contemplate overtime gap time. 

Although the DOL argued that employees must be paid their regular rates for all hours worked to satisfy the FLSA, the court found that “the statutory text simply does not support that inferential leap.” Although acknowledging the department’s position on this issue has been consistent for several decades, the court concluded that it could not be squared with “the statutory silence.” Noting that “when the statutory language is clear, the text is the beginning and the end of our inquiry,” the court rejected DOL interpretive guidance offered in support of the government’s argument. “[T]he natural reading of the FLSA is not elusive: the plain text does not contemplate a remedy for overtime gap time,” the court concluded.

“While the department's reading may better serve the policy objective of the FLSA overtime provision by ensuring employers do not mitigate or skirt the financial pressures of working their employees above the 40-hour threshold, that does not allow us to read into the FLSA a remedy that Congress did not create,” the court said, reversing the portion of the order and award based on allowing overtime gap time claims.

Turning to the employer’s arguments challenging the court’s factual findings, the appellate court found that documentary evidence and testimony at trial were sufficient to conclude that the district court didn’t clearly err in reaching its factual findings concerning the company’s miscalculation of employees’ regular rates and systemic mealtime work violations. The court’s factual findings were affirmed.

Finally, the court agreed with the employer’s argument that the district court applied incorrect and outdated legal standards in determining whether certain employees were exempt from overtime pay. The district court had determined that the employer failed to demonstrate plainly and unmistakably that assistant directors of nursing, maintenance directors, activities directors, nursing supervisors/unit directors, and housekeeping/environmental directors were exempt employees. The district court had reasoned that the employer bore the burden of proof to demonstrate that an employee plainly and unmistakably falls within an exemption and that the exemptions should be construed narrowly against the employer. However, in recent years the U.S. Supreme Court has clarified that FLSA exemptions shouldn’t be narrowly construed against an employer but instead should be given a fair reading. Further, the Supreme Court has said an employer bears the burden of proving an employee’s exempt status by a preponderance of the evidence, not plainly and unmistakably.

The district court made no findings concerning whether the salary criterion of the executive exemption was met for these employees or whether the employer had an actual practice of making improper deductions from their compensation, the appeals court noted. Lacking findings on this issue from the district court, the 3rd Circuit vacated that portion of the decision and remanded it for reconsideration and additional findings.

Secretary of U.S. Department of Labor v. Comprehensive Healthcare Management Services LLC, 3rd Cir., No. 24-2842 (June 3, 2026).

Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.