The U.S. Court of Appeals for the Eighth Circuit recently confirmed that the Fair Labor Standards Act (“FLSA”) does not prohibit an employer from modifying its workweek in order to avoid overtime costs. The Court’s ruling in Redline Energy confirms that employers are permitted to modify their workweeks as long as the change is intended to be permanent. Employers are not required to set forth a legitimate business reason for making the change and are permitted to do so solely for the purpose of reducing their overtime costs. The only requirement on employers is that the change must be intended to be permanent.
While the ruling appears to provide employers with the green light to go forward unrestrained in changing the definition of their workweek to avoid overtime costs, employers should proceed with caution by taking the following steps to best protect against potential claims:
· Provide Written Notice to Employees – The change will not go unnoticed by employees, especially if it impacts their compensation. Employers should provide employees with advanced written notice of the change so that no employees are “surprised” when their paychecks arrive. Open communications between employers and employees is the first defense to potential wage claims. The written notice should provide an explanation of the reason for the change, when it will go into effect and how employee compensation may be impacted.
· Comply with FLSA Regulations – FLSA regulations provide direction on how employee compensation is to be calculated when a permanent change in the defined workweek results in “overlapping” hours that fall within both the old and new workweeks. Employers should ensure that they comply with these rules and, when in doubt, pay the higher of the two rates for that pay period.
· Internally Document the Business Reasons – While employers are not required to establish a legitimate business reason for making the change, having contemporaneous documentation of the rationale will provide employers with defenses against potential retaliation claims and can establish that the change was intended to be permanent.
· Review State and Local Requirements – Employers outside the Eighth Circuit can rely on this decision because there are no conflicting decisions in the federal circuit or district courts; however, this decision is applicable only to changing workweeks under the FLSA. Many states and local municipalities have enacted laws that provide employees with greater protections. Employers must ensure that there are no state or local wage and hour provisions that restrict the ability to modify the defined workweek.