By Bruce Cross

Following the lead of several other courts of appeals and the long-held position of the U.S. Department of Labor (DOL), the U.S. 9th Circuit Court of Appeals—which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington—recently concluded that minimum wage compliance under the Fair Labor Standards Act (FLSA) is determined by dividing the total weekly earnings by the total hours worked that week.

If the result of that calculation is equal to or higher than the required minimum wage, the employer is in compliance even though it may have paid less than minimum wage for some hours worked during the week.

Xerox's Compensation Plan

For its call center employees, Xerox Business Services had what the court characterized as a "mind-numbingly complex" and "convoluted" compensation plan under which employees earned different rates of pay depending on the task and time spent on that task.

For example, for certain defined activities such as training and meetings, employees were paid on a normal hourly basis. For time spent managing inbound calls, however, employees were paid a variable rate based on a matrix of qualitative measures, such as customer satisfaction, and efficiency measures, such as length of call.

The resultant rates ranged from 15 cents to 25 cents per minute. There was a dispute between the parties over whether time spent on other tasks generated any additional pay at all, either via a variable rate or any other rate.

At the end of the workweek, Xerox added up the total amount earned and divided it by the total hours worked. If the resulting hourly rate equaled or exceeded the applicable minimum wage, that was what the employee earned that week. However, if the resulting hourly rate was under the minimum wage, Xerox made up the difference so that the employee earned on average at least minimum wage for the hours worked that week.

So Where's The Beef?

The employees, in a class action, contended that under Xerox's pay plan, they earned less than minimum wage for some hours of work, and they argued that the FLSA requires that each hour worked be paid at least the minimum wage even if the employees, by earning more than the minimum wage for other hours of work, ended up being paid on average at least the minimum wage. That is, they argued that the FLSA doesn't permit weekly averaging. According to them, it requires that they be paid at least minimum wage for each and every hour they worked.

9th Circuit Disagrees

In deciding whose position was correct, the court first looked at the statutory language of the FLSA and concluded that it doesn't provide an answer one way or the other. Turning next to the position of the DOL, the court noted that the agency responsible for administering the FLSA has publicly taken the position since the early days of the Act (in the late 1930s) that weekly averaging is permissible.

That long-held position, although not binding on the courts, was very persuasive, especially since Congress has amended the minimum wage provisions several times since then without rejecting the DOL's interpretation.

Finally, the court noted that all the other courts of appeals that have considered the issue (the 2nd, 4th, 8th, and the District of Columbia Circuits) have accepted the per-week principle. Observing that uniformity among the circuits is preferable, particularly in light of businesses such as Xerox that operate in multiple jurisdictions and could reasonably rely on administrative and judicial guidance in crafting their compensation systems, the 9th Circuit agreed that total compensation for the week as a whole was the proper measure of minimum wage compliance. Douglas v. Xerox Business Services, LLC, Case No. 16-35425 (9th Circuit, November 15, 2017).

Cautionary Note

This is a good decision for employers and greatly simplifies minimum wage compliance on the federal level. However, many states have their own minimum wage and overtime requirements that must also be satisfied. And it isn't clear that the weekly average approach to minimum wage compliance is acceptable in all of them. So employers that have "unusual" compensation programs may want to consult experienced counsel to be sure they are in compliance with all applicable requirements.

Bruce Cross practices in the labor practice group at Perkins Coie LLP. He can reached by e-mail at bcross@perkinscoie.com.