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Company Improperly Excluded Per Diem Benefits From The FLSA Regular Rate Of Pay
AMN Services (AMN) is a healthcare staffing company that places hourly workers on short-term assignments throughout the United States. AMN pays clinicians an hourly wage in addition to a per diem amount that is, in part, based on federal reimbursement rates. According to AMN, the per diem paid to travel clinicians is to reimburse them for the cost of meals, incidentals, and housing while they work away from home. Traveling clinicians do not need to document their expenses to receive a per diem. They only need to certify that their home is farther than 50 miles from their assigned facility. AMN treats these per diem payments as nontaxable income and excludes them from the regular rate of pay.
If clinicians work the weekly shifts required by their employment contracts, they are paid the maximum weekly per diem benefit. If a clinician works fewer hours or shifts than required, AMN prorates the per diem amount. Until the end of 2014, per diem payments were prorated based on hours missed. Starting in 2015, AMN switched to a shift-based prorating system. Under that system, if a clinician contracted to work three shifts per week misses a shift, the per diem allowance is adjusted by one-third. If a clinician works for a part, but not all, of the required hours in a shift, AMN will round to the nearest shift. In addition, clinicians can offset missed or incomplete shifts with hours they have “banked” on days or weeks when they worked more than the minimum required hours. AMN also makes certain exceptions to its prorating practices, such as if the hospital cancels the shift.
While most of AMN’s employees are assigned to work at facilities more than 50 miles away from their homes, AMN also employs “local clinicians” who work at facilities within 50 miles from their homes. Local clinicians also receive per diem benefits. However, for these local clinicians, the per diem benefit is included as part of their wages for both tax purposes and the calculation of their regular rate of pay.
Verna Clarke and Laura Wittmann worked as traveling clinicians for AMN. In 2016, Clarke and Wittmann filed a lawsuit against AMN on behalf of themselves and all other similarly situated individuals. They alleged claims for unpaid overtime under state law and the Fair Labor Standards Act (FLSA). For Clarke and Wittman’s FLSA claim, the district court certified a nationwide class. The district court then entered judgment in AMN’s favor on the FLSA and state unpaid wages causes of action.
The FLSA generally prohibits an employer from requiring an employee to work longer than 40 hours in a workweek unless the employer pays for the excess hours at a rate of at least one and one-half times the employee’s “regular rate of pay.” The FLSA regular rate of pay includes “all remuneration for employment paid to, or on behalf of, the employee.” But, the FLSA also allows employers to exclude certain payments from the regular rate of pay. For example, “reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursement by the employer” can be excluded from the regular rate of pay.
On appeal, the workers asserted that their per diem payments operated as wages, and thus, should have been included in the calculation of their regular rate of pay. AMN argued that the per diem wages were not wages, but instead, reasonable reimbursement for work-related expenses incurred while traveling on assignment.
The Ninth Circuit Court of Appeals reasoned that in determining a payment’s function, the tie between payments and time worked is relevant but not determinative in assessing whether a payment can be excluded from the regular rate of pay. The Court noted that other relevant factors include: 1) whether the payments are made regardless of whether any costs are actually incurred; 2) whether the employer requires an attestation that the employee incurred costs; 3) the amount of the per diem payment relative to the regular rate of pay; and 4) whether the payments are tethered specifically to days or periods spend away from home.
Applying these factors, the Ninth Circuit decided that AMN’s per diem benefit for traveling clinicians functioned as compensation for work, rather than reimbursement for expenses incurred. First, under AMN’s policies, the maximum per diem benefit compensates employees for seven days of expenses, even though most only work three, 12-hour shifts. AMN was therefore paying clinicians a per diem for days they are not working for AMN. Second, AMN’s pro-rata deductions from its per diem payments are unconnected to whether the employee remains away from home incurring expenses for AMN’s benefit. Third, because clinicians can offset missed or incomplete shifts with “banked” hours, there is no plausible connection between working extra hours one week and incurring greater expenses the next. Finally, AMN pays local clinicians the same per diem it would if the clinicians were traveling. Thus, the Ninth Circuit concluded the per diem benefits function as compensation for hours worked, and AMN violated the FLSA by excluding the benefits from traveling clinicians’ regular rate of pay.
Clarke v. AMN Servs., 987 F.3d 848 (9th Cir. 2021).
This case addresses the same provision of the FLSA the Court addressed in the Flores v. City of San Gabriel decision. In the Flores decision, the Ninth Circuit concluded that cash-in-lieu-of-benefits payments must generally be included in the regular rate of pay for the purposes of calculating overtime payments.