Third Circuit Rejects “Overtime Gap Time” Claims Under FLSA

Why It Matters

The decision narrows federal wage‑and‑hour exposure for employers in the Third Circuit, but leaves open state‑law and contract avenues for workers seeking pay for unpaid straight‑time hours.

Key Takeaways

• Third Circuit bars FLSA overtime‑gap‑time recovery
• Employers need only meet minimum‑wage and overtime thresholds
• State law claims still possible for unpaid straight‑time hours
• Decision deepens circuit split on regular‑rate interpretation
• Accurate time‑keeping remains critical to limit liability

Pulse Analysis

The Third Circuit’s opinion marks a pivotal shift in how the FLSA is applied to “overtime gap time” claims. The case originated from a Department of Labor enforcement action that uncovered systematic time‑keeping failures at several Pennsylvania health‑care facilities. After a bench trial awarded over $35 million—including back pay for unpaid straight‑time hours in overtime weeks—the appellate court found the statutory language of §§206 and 207 does not extend to such gap‑time compensation. By anchoring its analysis in the plain text of the law, the majority rejected the DOL’s guidance that all hours must be paid at the regular rate before overtime is calculated.

Legal scholars note that the ruling intensifies an existing circuit split. While the Second Circuit has similarly rejected overtime‑gap‑time claims, the Fourth Circuit has leaned toward the DOL’s interpretation, allowing recovery under the FLSA. The dissenting opinion highlighted the ambiguity of the term “regular rate,” suggesting that a broader reading would better protect workers’ earnings. This divergence signals that future Supreme Court review is possible, especially as employers grapple with inconsistent obligations across jurisdictions.

For businesses operating in the Third Circuit, the practical takeaway is clear: ensure that every employee receives at least the federal minimum wage for all hours worked, regardless of overtime status, to avoid FLSA liability. However, compliance cannot stop at the federal level; many states maintain stricter wage‑and‑hour statutes that could still permit gap‑time recovery. Robust time‑keeping systems, regular audits, and alignment of contract rates with actual pay are essential risk‑mitigation strategies. As courts continue to interpret the regular‑rate concept, proactive payroll governance will be the most reliable shield against both federal and state exposure.