In Douglas v. Xerox Business Services, the Ninth Circuit became the latest circuit to rule that employers should look at the workweek as a whole to determine compliance with the minimum-wage provision of the Fair Labor Standards Act (“FLSA”).  This result has also been adopted by Second, Fourth, Eighth, and D.C. Circuits, and is reflective of a policy enacted by the Department decades ago.

The plaintiffs in this case were customer service representatives at call centers operated by Xerox Business Services, LLC.  Their primary duty was to answer incoming calls, but they were also responsible for other tasks, such as attending trainings and meetings and monitoring email.  The plaintiffs were paid pursuant to what the court described as a “mind-numbingly complex payment plan” where employees earned different rates of pay depending on the task performed and the time spent on that task.  They received a flat rate of $9.04 per hour for certain activities (such as trainings and meetings), and their pay rate for time spent performing their primary job duty of managing inbound calls was variable, between $0.15 to $0.25 per minute.  Each employee’s specific pay rate was determined based on quality measures (such as customer satisfaction) and efficiency measures (such as the length of calls).  All other tasks had no specific designated rate.

At the end of each workweek, Xerox totaled the amounts earned by the employee under the payment plan described above and divided by the total hours the employee worked that week to determine the employee’s hourly rate of pay.  If the resulting hourly wage equaled or exceeded the minimum wage, Xerox did not pay the employee anything more.  However, if the resulting hourly wage fell below the minimum wage, Xerox paid the employee a subsidy to increase the employee’s average hourly wage to minimum wage.  This practice ensured that no employee’s average weekly pay ever fell below the minimum wage.

The plaintiffs argued that the FLSA measures compliance on an hour-by-hour basis and does not allow averaging over a longer period of time.  Therefore, according to the plaintiffs, Xerox violated the FLSA by paying its employees above the minimum wage for some hours worked and below the minimum wage for other hours worked.  The plaintiffs argued that they were entitled to back pay for every hour they worked at a rate below the minimum wage.

The Ninth Circuit rejected the plaintiffs’ claims and concluded that compliance with the FLSA’s minimum wage provision is properly determined by evaluating whether an employee was paid at a rate equal to or above the minimum wage over the course of the workweek.  Therefore, the court determined that Xerox did not violate the FLSA by averaging employees’ various rates of pay over the workweek to ensure the average rate was equal to or greater than the minimum wage.

In reaching this decision, the court acknowledged that the text of the FLSA was not instructive and instead looked for guidance to the Department of Labor’s long-standing rule on the subject, which has been in effect since 1938, and the rules followed in other circuits.  No circuit that has examined this issue has taken a contrary position.

Wage and hour issues involve a particularly complex area of the law.  Many employers find it helpful to consult with counsel regarding their pay practices to ensure compliance.