The U.S. Court of Appeals for the Third Circuit recently held that the Fair Labor Standards Act (FLSA) does not provide a remedy for "overtime gap time" claims—compensation for non-overtime hours worked in a pay period when an employee has also worked overtime. The decision in Secretary of the United States Department of Labor v. Comprehensive Healthcare Management Services LLC deepens an existing circuit split that may ultimately draw the attention of the U.S. Supreme Court.
What Is "Gap Time"?
The FLSA requires employers to pay nonexempt employees at least the federal minimum wage for all hours worked and overtime at one and one-half times the employee's regular rate for hours exceeding 40 in a workweek. Gap time refers to hours that fall between the cracks of these two requirements. It is time that is uncompensated but does not push the employee below minimum wage and does not itself constitute overtime.
There are two varieties of gap time: pure gap time and overtime gap time. Pure gap time involves unpaid straight-time hours in a workweek where the employee does not work more than 40 hours. Courts have widely held that pure gap time claims are not cognizable under the FLSA.
Overtime gap time involves unpaid straight-time hours in a workweek where the employee also works overtime. For example, an employee works 43 hours in a week but is paid for only 38 hours of straight time and 3 hours of overtime, leaving two hours of non-overtime work uncompensated. Whether the FLSA provides a remedy for those two hours has been an open question in the Third Circuit until now.
Third Circuit Decision in Secretary of Labor v. Comprehensive Healthcare Management Services LLC
The case arose from a Department of Labor (DOL) enforcement action against a group of Pennsylvania-based nursing, rehabilitation, and assisted living facilities. The DOL filed suit in 2018 on behalf of nearly 6,000 employees, alleging widespread FLSA violations, including failure to maintain accurate time records, paying employees based on scheduled hours rather than hours actually worked, automatic meal break deductions even when employees worked through breaks, miscalculation of overtime rates, and misclassification of certain employees as exempt.
The district court found sweeping violations and awarded approximately $35.8 million in damages, including compensation for overtime gap time. Although the Third Circuit had not yet addressed the viability of such claims, the district court concluded that denying this compensation "would run afoul of the FLSA's core remedial purposes." Comprehensive Healthcare appealed.
The Third Circuit held that the FLSA's text is unambiguous: the statute requires employers to pay minimum wages and overtime wages, and nothing more. The Third Circuit reversed the district court's award because the FLSA "does not contemplate overtime gap time."
The Third Circuit rejected the DOL's argument that because overtime is calculated based on the employee's regular rate, an employer has not properly paid overtime unless it has first paid straight-time wages for all non-overtime hours. The majority found that "the statutory text simply does not support that inferential leap." The Third Circuit also declined to defer to the DOL's long-standing interpretive guidance, which provides that overtime is not properly paid unless an employer has first paid all straight-time wages owed for non-overtime hours worked.
What the Third Circuit's FLSA "Overtime Gap Time" Decision Means for Employers
In the Second and Third Circuits, employers generally will not face FLSA liability for unpaid straight-time hours in weeks when employees also work overtime, so long as the employees' effective hourly rate does not fall below the minimum wage. This eliminates a category of damages the DOL has actively pursued.
However, the decision does not leave employees without recourse. The Third Circuit noted that employees may pursue unpaid gap time wages through state wage payment and collection laws or breach of contract claims. Employers should be mindful that many states have statutes that may independently require payment for all hours worked at the agreed-upon rate.
The circuit split also creates complexity for multistate employers. Because federal appellate courts remain divided over whether overtime gap time claims are viable under the FLSA, employers with operations spanning multiple circuits must navigate conflicting federal precedent. Employers should review timekeeping systems to ensure all hours worked are accurately captured and paid, confirm that the regular rate of pay includes all required forms of compensation, and evaluate exemption classifications to ensure they align with the current standard.
If you are an employer with questions about this decision, its implications, or its application to specific employment practices, please contact the authors or any attorney in Venable's Labor and Employment Group.