File this one under the category, “No Good Deed Goes Unpunished.” The Case: Louise Parth v. Pomona Valley Hospital Medical Center (12/13/2010, as amended) US 9TH Circuit Court of Appeals No. 08-55022. A case of first impression, the Ninth Circuit Court has just ruled that employers, when offering an alternative workweek schedule that their employees desire, may artificially reduce their employees’ regular rate of pay, to control the employers’ labor costs, without violating the Fair Labor Standards Act. This case should be of interest to any employer who has ever considered the option of an alternative workweek schedule.

Prior to 1990, Pomona Valley Hospital Medical Center (PVHMC) scheduled its Nurses to work (8) eight-hour shifts. But, many nurses preferred (12) twelve-hour shifts, so that they would have more free days away from the hospital. The nurses requested that the Hospital change their shifts from (8) eight hours to (12) twelve hours. In response, the Hospital implemented an optional 12-hour shift schedule in 1989-1990. (Note: Fair Labor Standards Act § 207(j) offers hospitals and certain other institutions to agree with their employees to calculate weekly overtime over a 14 day period. Overtime is then paid over 8 hours in a day or 80 hours in a week-“the 8/80 plan”)

The plan’s features: Nurses who worked more than (8) eight hours in a day, or more than 80 hours in a (14) fourteen day period, received overtime at 1.5 times the employee’s regular rate of pay. Nurses who volunteered to work more than (12) twelve hours in a day, would be paid at (2) twice their hourly rate of pay. Absent a medical emergency, the Hospital could not require nurses to work additional shifts. in 1993, the nurses in the Emergency Room of PHVHMC, including the Plaintiff in this case, Louise Parth, voted to implement these 12-hour shifts.

The tradeoff: As consideration and in exchange for the (12) hour shifts, which gave nurses more free time and flexibility in their personal schedules, the Hospital reduced the regular, hourly rate so that nurses working the (12) twelve-hour shift would earn about the same amount of money as nurses who worked an (8) eight-hour shift. Obviously, the Hospital had an understandable interest in controlling and balancing its labor costs.

Approximately ten years later, in 2003, the nurses voted to unionize. As a result of collective bargaining and following the ratification vote in 2004, all nurses received a 20% pay increase over the next (3) three years. The collective bargaining agreement (CBA) also reaffirmed the lower base rate for nurses working the 12-hour schedule. It’s worth noting that the CBA set hourly rates for plaintiff’s position as follows: $34.644 – base rate, $39.84 – weeknight base rate, $46.929 – the weekend night base rate. For anyone who cares to do the math, it is evident that nurses such as Plaintiff, who worked full-time, were likely receiving yearly earnings of approximately $80,000 – $100,000.00, or more, plus benefits under the union contract-not too shabby. But, that still wasn’t enough for this Plaintiff. In her collective action, Plaintiff, Louis Parth accused the Hospital of violating the Fair Labor Standards Act by paying nurses an artificially reduced hourly rate under the (12) twelve-hour schedule.

In affirming the validity of the pay plan, the Ninth Circuit Court of Appeals soundly rejected Parth’s argument. The Court noted that, under the FLSA, “employers and employees are generally free to establish the regular, non-overtime rate at any point and in any manner they see fit,” so long as the FLSA’s minimum hourly rate requirements are respected. The Court concluded that the Hospital could alter the employees’ regular rate of pay to provide the employees with the schedule that they desired. The Court held that nothing in the FLSA bars an employer from contracting with employees to pay them the same wages that they received previously so long as the new rate equals or exceeds the minimum rates established by the Fair Labor Standards Act. In reaching the conclusion that the plan did not violate the Fair Labor Standards Act, the Court considered these factors:

• The 12-hour schedule was first initiated at the nurses request for greater flexibility;
• The 12-hour schedule became part of the collective bargaining agreement executed between the hospital and the nurses union;
• The wages paid under the plan are more than minimum wages under federal law;
• Nurses are paid overtime for more than (8) hours daily or (80) hours every 14 days;
• Nurses who volunteer to work more than (12) twelve hours per shift, are paid double time;
• The Hospital may not force a nurse to work an extra shift, absent a medical emergency;
• The overall wages paid to a nurse who works the (12) hour schedule are approximately equal to nurses who work the (8) eight hour schedule.

The Ninth Circuit concluded that the Plaintiff failed to produce “any evidence or authority to support her claim that PVHMC’s plan violates the FLSA.” In fact, the Court concluded that PVHMC was “justified” in responding to its employees’ requests for an alternative workweek schedule. In fact, it seems that much of Parth’s legal argument centered around her contention about the proper method for the calculation of overtime wages: The Hospital used the “weighted average method” of determining the regular pay rate-overtime rate of pay vs. Parth’s preference for the “average blended method” for pay rate-overtime rate calculation. Parth tried to argue that the Hospital’s method for pay rate calculation violated the FLSA. The Court also resolved these arguments in the Hospital’s favor. Absent Supreme Court review, this appears to be a clear win for the Hospital. Perhaps the real question here is why this lawsuit was ever initiated.

The significance for all employers is that, so long as they conform to state and federal law, (including the FLSA and California’s Labor Code § 511-Alternative Work Week Schedules), employers may offer greater workplace flexibility in the form of alternative work schedules, perhaps at reduced hourly rates to their employees, so as to manage and control labor costs. That’s a real win-win proposition for both management and employees, and especially when both sides are searching for greater workplace flexibility.