On November 15, 2017, in a case of first impression in the Ninth Circuit, the Court of Appeals adopted the longstanding position of sister circuits and the U.S. Department of Labor that for purposes of determining whether an employee has received the minimum wage under federal law, the employer can divide total weekly earnings by the number of actual hours worked.  In other words, the relevant unit for determining minimum-wage compliance is the workweek as a whole—and not individual hours within the workweek.

The plaintiffs in Douglas v. Xerox Business Services, LLC (No. 16-35425) were customer service representatives who were paid different rates depending on the task and the time spent on each task.  At the end of each workweek, Xerox added the amounts earned for all tasks and divided the total by the number of hours the employee worked that week.  If the resulting hourly rate was below the minimum wage, Xerox provided a supplemental payment to raise the average hourly rate to the minimum wage.

The plaintiffs alleged that pay practice was unlawful, arguing that the FLSA measures minimum wage compliance on an hour-by-hour basis and does not allow averaging over a longer period.

The Court of Appeals disagreed, relying on the longstanding view of both sister circuits and the DOL that minimum wage compliance is to be assessed on a workweek basis.  While the text of the FLSA states the minimum wage obligation as an hourly rate, it does not definitively prescribe the computation period or say that the only permissible measure is the hour.  Legislative history also does not answer the question directly.

But in February 1940—less than a year and a half after the FLSA became law—the DOL adopted the per-workweek measure of minimum wage compliance.  In an opinion letter issued by the General Counsel of its Wage and Hour Division, the agency noted that “[f]or enforcement purposes, the Wage and Hour Division is at present adopting the workweek as the standard period of time over which wages may be averaged to determine whether the employer has paid the equivalent of [the minimum wage].”  While the enforcement position has never been codified in the FLSA regulations, neither party to the Xerox litigation could identify any occasion on which the DOL has deviated from its 1940 position.  Indeed, the agency’s Field Operations Handbook and online guidance continue to confirm that the per-workweek measure of compliance is still a proper pay practice.

Courts throughout the country, including the Second, Fourth, Eighth, and D.C. Circuits, have followed the DOL position on the issue.  The Ninth Circuit also noted as significant that Congress has made changes to the FLSA’s minimum wage provision over the years without disturbing the agency and judicial decisions endorsing a per-workweek measure of compliance.  Favoring “national uniformity” on the issue, the Ninth Circuit joined its sister circuits in declaring the workweek as the proper unit for measuring federal minimum wage compliance.

The ability to average pay across the workweek for minimum wage purposes is particularly useful for employers who pay on a commission or piece rate basis, where employees may—depending on their activities—earn less than the minimum wage for certain hours and more than the minimum wage for other hours.

Remember that federal wage law creates a floor of protections, and not a ceiling.  States may still prohibit “pay averaging” in certain circumstances (e.g., when an employee is paid only on a piece rate basis and receives no additional pay for “non-productive” hours), so employers must be mindful of both state and federal law when they assess their pay practices.