Second Circuit Says "No" To Conditional Overtime

In Chao v. Gotham City Registry, Inc. (06-2432-CV - Decided: January 24, 2008), the United States Court of Appeals for the Second Circuit held, in a case of first impression, that an employer policy requiring prior authorization for overtime work does not relieve the employer from paying overtime absent such pre-approval.

The Gotham City case involved a Petition for civil contempt brought by the United States Secretary of Labor (the “Secretary”) for an alleged violation of a Consent Judgment requiring the employer (a temporary staffing agency providing nurses to hospitals) to pay overtime to its nurses. Prior to the Consent Judgment, the employer had paid straight time for all hours worked in excess of forty hours per week, thereby violating the Fair Labor Standards Act (the “FLSA”). After the Consent Judgment and consultation with counsel, the employer implemented a policy requiring its nurses to obtain authorization prior to working any overtime hours; under the policy, overtime would not be paid absent the employer’s prior authorization. The purpose of the policy was to prevent the employer from paying for unwanted overtime hours worked. The Secretary claimed the policy violated the provisions of the Consent Judgment; however, the District Court denied the Petition for contempt and the Secretary appealed.

The Second Circuit affirmed the decision of the District Court. Initially, the court goes through an exhaustive analysis of the FLSA and the definition of the term “work.” The decision is worth reading for that alone. The court then notes that the nurses typically lacked the opportunity to obtain prior approval for overtime given the critical nature of their work; indeed, during the course of their assignments at client hospitals, the nurses were asked to work overtime by hospital staff. Ultimately, the court held, among other things, that an employer has a duty to exercise control over its workers and to ensure that unwanted work is not performed. The court stated: “[t]he mere promulgation of a rule against such [overtime] work is not enough. Management has the power to enforce the rule and must make every effort to do so.”

As to the issue of civil contempt, the court affirmed the District Court’s denial of the Petition on the ground that the employer had made adequate efforts to comply with the Consent Judgment. The court noted that it was difficult for the employer to maintain control over its nurses given that they worked off-premises. It found that the employer had taken reasonable steps to ensure compliance with its overtime policy such as consulting with counsel prior to its implementation, making the nurses aware of the rule, discouraging them from accepting overtime shifts without seeking prior approval, and discouraging its clients from offering overtime shifts. Also militating against a finding of contempt was the fact that the employer negotiated with its client hospitals to procure an overtime premium retrospectively when its nurses worked overtime.

Based on the holding in Gotham City, an employment policy providing for conditional overtime in the Second Circuit appears to be a thing of the past.