February 12, 2021 - This Week at the Ninth

This Week at the Ninth: Per Diems and Wages

This week, we take a look at the Court’s decision attempting to navigate the fine line between employer payments that reimburse employees for expenses—and thus need not be considered in calculating the employees’ overtime wage rate—and payments that in fact compensate employees for hours worked.

Clarke v. AMN Services, LLC
The Court holds that “per diem” reimbursement payments were not actually reimbursements, but rather functioned as wages subject to state and federal overtime requirements.

The panel:  Judges Baldock (CA6), Berzon, and Collins, with Judge Berzon writing the opinion.

Key highlight:  “AMN’s explanation for the payments made to local clinicians—that providing per diems to local clinicians encourages them to work the required hours—applies equally to travelling clinicians, and confirms that the payments do function as compensation—namely, as a bonus for good work attendance.  The comparison to local clinicians’ payments is an exceedingly strong indication that the per diem payments made to both groups of clinicians function as compensation for labor.”

Background:  Plaintiffs Verna Clarke and Laura Wittman worked for AMN Services, a healthcare staffing company that placed nurses and technicians in various short-term assignments, some of which required travel away from their homes.  Clarke and Wittman were paid both hour an hourly wage and a “per diem” derived from the federal reimbursement rates for meals, lodging, and incidentals.  AMN generally calculated these per diem payments on a weekly basis, paying employees who worked their assigned shifts seven days’ worth of benefits.  AMN made these per diem payments to its employees regardless of whether they actually traveled for their work.  For employees who traveled more than 50 miles from their homes, AMN classified the per diem payments as reimbursements, and thus did not include them in the calculation of any overtime wages.  For those employees who did not travel, by contrast, AMN classified the per diem payments as regular wages.

Invoking the federal Fair Labor Standards Act (FLSA) and parallel California laws, Clark and Wittman and sued on behalf of a class of AMN employees.  They alleged that AMN was improperly treating these per diem payments as reimbursements rather than wages and thus depriving them of the full amount of overtime compensation to which they were entitled.  The district court granted summary judgment to AMN, concluding that the per diems qualified under the FLSA as overtime-rate-exempt “reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer.” 

Result:  The Ninth Circuit reversed, directing the district court to enter partial summary judgment for the plaintiff class.  The Court began by explaining that whether payments must be included in an employee’s “regular rate” for purposes of overtime compensation turns on a multi-factor inquiry into the “function” that those payments serve—that is, whether they funtion as compensation rather than reimbursement.  A critical, albeit not dispositive, factor is whether “payments increase, decrease, or both based on time worked.”  Other relevant factors include “whether the payments are made regardless of whether any costs are actually incurred,” whether “the employer requires any attestation that costs were incurred,” and “the amount of the per diem payment relative to the regular rate of pay.”

Applying that standard, the Court concluded that AMN’s per diems functioned as compensation, not reimbursement.  The Court emphasized various ways in which the payments were tied to hours worked and not expenses incurred—for example, employees that traveled but then were too sick to report for work were not paid the per diem, and employees that had worked extra hours a prior week were able to use those “banked” hours toward per diems in subsequent weeks in which they would not have otherwise worked the requisite hours.  The Court also deemed it especially “telling[]” that local clinicians who did not travel received the very same per diem payments.  This “combination of factors,” the Court held, “together indicate that the payments functioned as compensation for hours worked.”