A natural gas drilling company in Arkansas did not violate the Fair Labor Standards Act when it re-designated the workweek of its drilling rig operators, but did not change their actual work schedules, resulting in the operators’ overtime hours being split between two payroll periods, the Eighth Circuit Court of Appeals has found. Abshire v. Redland Energy Servs., LLC, No. 11-3380 (8th Cir. Oct. 10, 2012).  The Eighth Circuit has jurisdiction over Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

Background

Redland Energy Services drills and services gas wells in Arkansas. A crew of operators worked twelve-hour shifts for seven consecutive days, followed by seven days off. Redland scheduled its drill rig employees to work from Tuesdays through Mondays, so that they would have one weekend off every two weeks. Redland used a Tuesday to Monday workweek for drill rig employees for purposes of overtime calculations. It used a Sunday to Saturday workweek for its other employees, who worked Monday to Friday.

In an effort to save money, in May 2009, Redland reduced not only the size of its drill rig crews, but also changed the rig employees’ workweek designation to a Sunday to Saturday workweek. With this change, the rig employees’ workweek conformed to that of other employees. Redland advised the rig employees in a memorandum that there would not be a change to the actual workweek, which would remain Tuesday to Monday, but that there would be a reduction in overtime hours because the workweek for payroll purposes would be split into two payroll periods.  Because of this change, five employees filed a FLSA lawsuit on behalf of themselves and similarly situated employees who might join in the action under the FLSA’s “opt-in” procedure. See 29 U.S.C. §216 (b).

The company’s reasoning and evidence presented for the workweek re-designation for the rig employees was that the consolidation reduced the time needed to “prepare payroll,” from five days to two a month. More importantly, the re-designation lowered “payroll expense by reducing the number of hours that drill rig employees must be paid at the FLSA-mandated overtime rate.” 

The drill employees argued that the FLSA prohibits an employer from changing an existing workweek for the purpose of reducing employee overtime and that Redland’s objective in “changing the workweek was to reduce work at overtime rates and that Redland’s claim of the administrative efficiencies was pretextual.”

FLSA Standard

The FLSA does not define the term “workweek.”  The Department of Labor regulations at 29 C.F.R. 778.105 define workweek to mean:

fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods. It need not coincide with the calendar week, but can begin on any day and at any hour of the day.

Relying upon this language, the Eighth Circuit found that an employer does not violate the FLSA merely because it designates a consistent workweek in which employees earn fewer overtime hours “than they would if the workweek was more favorably aligned with their work schedules.”  The Court further opined that it was “aware of no contrary authority,” with the exception of dicta in Seymore v. Metson Marine Inc., 128 Cal. Rptr. 3d 13, 17 WH Cases2d 1069 (Cal. Ct. App. 2011) (41 DLR A-1, 3/2/11), in which the state law of California was applied.

FLSA Permissible Changes

The Court also found that the Labor Department, which enforces the FLSA, “has never interpreted its general caution that changes to the workweek may not be ‘designed to evade the overtime requirements,’ nor has it attempted to clarify what constitutes ‘evasion.’” Therefore, the Eighth Circuit said that “an employer’s effort to reduce its payroll expense is not contrary to the FLSA’s purpose,” and that courts “may not imply a prohibition that cannot be found” in the FLSA.

The Eighth Circuit relied upon two other court cases, Kerbes v. Raceway Associates LLC, 961 N.E. 2d 865 (Ill. App. 2011), and Morehead v. City of Pearl, 763 F. Supp. 175 (S.D. Miss. 1990), in finding that a re-designation of the workweek intended to reduce overtime was not an “evasion” of the statutory overtime requirement.  It held that “[s]o long as the change is intended to be permanent, and it is implemented in accordance with the FLSA, the employer’s reasons for adopting the change are irrelevant.” Thus, an employer’s efforts to reduce its payroll expense are not contrary to the FLSA’s purpose.