Blended Rate Was Improper Under the FLSA

​An employer that paid its employees the same "blended" hourly rate regardless of the hours worked violated the Fair Labor Standards Act (FLSA), even though the practice may have resulted in the employees' receiving greater pay.

The defendants provided consultants to oil and gas operators to "observe, document and report" whether contractors were "in compliance with recommended safety practices." From December 2014 through December 2016, consultants were regularly scheduled to work on what is known in the oil and gas industry as a "hitch." Specifically, the defendant assigned the consultants to work 12 hours per day for 14 consecutive days, followed by 14 consecutive days off. This schedule resulted in an 84-hour workweek and a total of 168 hours worked during every two-week hitch.

When a consultant worked less than a full hitch, the defendant adjusted the employee's pay, applying a blended rate by dividing the hitch rate by 168. The consultant's pay would be determined by multiplying the number of hours the person actually worked by the blended rate.

In October 2015, an anonymous consultant complained to the Department of Labor (DOL) that the defendant was violating the FLSA by failing to pay overtime. Ultimately, an inspector determined that the defendant had failed to pay proper overtime and keep accurate records, and calculated back wages due. The defendant agreed to take corrective action in the future but refused to pay back wages.

The DOL filed a complaint against the defendant insisting that it failed to pay overtime because it "paid employees the same hourly rate for every hour they worked, regardless of whether they worked fewer than 40 hours in a workweek or more than 40 hours." The defendants contended that they properly paid a fixed rate per hitch, which was based on both straight time and overtime wages, and actually overpaid the consultants when using the blended rate.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

The court noted that the FLSA does not "impose upon the almost infinite variety of employment situations a single, rigid form of wage agreement," but the agreement must contemplate a regular rate and overtime pay. The defendant stated that when employment offers were communicated to consultants, they were verbally informed of the straight and overtime rates, as well as the total approximate amount of compensation for every 168-hour hitch. "Even assuming that such an agreement existed," the court remarked, it "clearly did not reflect the regular rate of pay actually in effect." An "employee's 'regular rate' is the hourly rate that the employer pays the employee for the normal, nonovertime, 40-hour workweek."

First, that the defendant never recorded purported straight and overtime rates was significant to the court. The defendant did not include those figures in the offer letters or on the consultants' paychecks or retain the calculations in their records.

Second, the defendant always applied a blended rate to "anything outside the full hitch." The court noted that the blended rate was used to pay consultants not only when they worked less than 84 hours in a week but also when they worked less than 40 hours in a week. Therefore, the court concluded, the undisputed evidence established that the blended rate was the regular rate for purposes of the FLSA.

The court was unconvinced by the argument that the blended rate resulted in the consultants' being paid more than they were entitled to under the agreed straight-time rate. The court noted that the defendant's accountant did not realize that the consultants were being overpaid until the DOL began its investigation, thereby refuting the notion that the defendant laudably paid its employees more than they were entitled to receive. Furthermore, the court maintained that whether the consultants' pay remained substantially the same when the defendants transitioned to the blended rate in 2014, or since January 2017 when the defendants reverted to paying on the basis of straight and overtime rates has "little relevance to the issues in this case."

Dept. of Labor v. Fire & Safety Investigation Consulting Services LLC, N.D. W.Va., No. 1:17-CV-25, (May 3, 2018).

Professional Pointer: Covered employers under the FLSA must keep certain records for nonexempt workers, including regular hourly pay, daily or weekly straight-time earnings, and overtime earnings.

Roger S. Achille is an attorney and professor at Johnson & Wales University in Providence, R.I.