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July 08, 2010
Was His Pay Structure Legit?
A skilled aircraft painter in Texas was recruited by a staffing firm to work for an aviation company and the staffer as joint employers. His employment contract specified that he would be paid $5.50 an hour for straight time, $20 an hour for overtime, and $12.50 an hour for what the firm called “per diem,” claiming the purpose was to reimburse the painter for his commuting expenses. Was that arrangement OK?

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What happened. “Rich” was hired by United Technisource, which later merged with AIS Tech Services (UTI/AIS) to perform work for Wing Aviation, Inc., in February 2006. He later alleged that his hourly rate was extremely low for his skill level and experience, testifying that other painters at Wing itself were paid as much as $24 an hour for straight time. At some point during his year with UTI/AIS, Rich moved much closer to the Wing facility, and that may have been why UTI/AIS fired him in February 2007. The opinion in his case doesn’t say why he was fired, but UTI/AIS told judges that by moving to less than 10 miles from his workplace and failing to notify the staffing firm, he had committed fraud.

What the staffing firm meant was that it would have eliminated his per diem allowance, paying him only $5.50 an hour. After he was fired, Rich sued for violation of the Fair Labor Standards Act (FLSA), arguing that he was owed more overtime pay than he had been given. A federal district court judge reasoned that the per diem should have been considered as part of Rich’s ‘regular pay’ for the purpose of computing overtime, and he ruled against UTI/AIS. The staffing firms appealed to the 5th Circuit, which covers Louisiana, Mississippi, and Texas.

What the court said. UTI/AIS presented appellate judges with a variety of arguments—that Rich had committed fraud by failing to disclose his move; that he owed a portion of the per diem allowance to UTI/AIS; that the firms hadn’t willfully violated FLSA, and that the district judge improperly awarded Rich attorney’s fees and costs. The judges rejected the first three premises, reasoning that the per diem should always have been part of Rich’s regular pay, not reimbursement of his travel expenses. The district judge, however, had not explained his reasoning on attorney’s fees, so judges sent that issue back to him for reconsideration. Gagnon v. UTI/AIS, U.S. Court of Appeals for the 5th Circuit, No. 09-20098 (5/27/10).

Point to remember: Judges wrote, “We are … troubled by the fact that the combined ‘straight time’ and ‘per diem’ hourly rates approximately match the prevailing wage for aircraft painters.” They meant it appeared that UTI-AIS intended to violate FLSA.

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