The
Ninth Circuit Court of Appeals held that a weekly per diem paid to clinicians
employed by a healthcare staffing agency needed to be included in the regular
rate used to calculate clinicians’ overtime pay. (Clarke v. AMN Services,
LLC (9th Cir., Feb. 8, 2021, No. 19-55784) 2021 WL 419473.) The court held
that because the per diem functioned as compensation for work performed
rather than as reimbursement for work-related expenses, it was
improperly excluded from the calculation of clinicians’ “regular rate of pay” for
overtime purposes under the Fair Labor Standards Act (FLSA).
The case involved AMN Services, a healthcare staffing
company that places hourly workers on short-term assignments throughout the
country. AMN paid traveling clinicians a per diem intended to reimburse them
for costs such as meals, incidentals, and housing while working away from home.
The clinicians were not required to provide proof of these costs, but rather
received the per diem whenever their work assignment was further than 50 miles
from their residence. Clinicians were required to work three 12-hour shifts per
week. If a clinician worked less, their per diem was reduced. However, they
could “bank” excess hours from previous weeks, which would then off-set any
missed shifts. Local clinicians also received per diem payments, but for those
employees, the per diems were included as part of their wages for overtime
purposes. The district court granted summary judgment for AMN, and the Ninth
Circuit reversed.
In coming to this conclusion, the Ninth Circuit stated that
the relevant test, the “function” test, requires a case-specific inquiry based
on the particular formula used to determine the amount of the per diem
benefits. Other relevant, but not dispositive, factors include whether (i) the
payments increase or decrease based on the time worked, (ii) payments occur
irrespective of incurring any actual costs, (iii) the employer requires any
attestation that costs were incurred, and (iv) payments are tethered to days or
periods spent away from home or instead occur without regard to whether the
employee is away from home.
In applying these factors in the present case, the Ninth
Circuit noted that the employer made pro rata deductions in the per diem
payments that were unconnected to whether the employee remained away from home
incurring expenses for its benefit (such as for clinicians who were too ill to
work), which indicated that the deductions were connected to the amount paid
for hours worked while away from home. Further, the Ninth Circuit found it
relevant that the clinicians were permitted to offset missed or incomplete
shifts with hours they “banked” on days or weeks in which they worked more than
the minimum required hours. The court noted that there was no plausible
connection between working extra hours one week and incurring greater expenses
the next. Finally, the Ninth Circuit held that the strongest indicator that the
payments were in fact compensation for hours worked was that the company paid
local clinicians and traveling clinicians the same per diem payments and
considered the local clinician’s per diem payments as wages. In sum, the court
found that the per diem was not tied to the actual expenses each employee
incurred and therefore could be construed as “supplemental compensation” which
should be included in the employee’s “regular rate of pay.”
The ruling marks a significant win for hourly workers and confirms that courts must consider the function and purpose of per diem payments rather than defer to the employer’s categorization. Further, although the case was decided under the FLSA, the Ninth Circuit stated its understanding that the same general analysis applied under the California Labor Code.
