Duane Morris Takeaways: On June 3, 2026, addressing an issue of first impression on overtime gap time, the U.S. Court of Appeals for the Third Circuit in U.S. Department of Labor v. Comprehensive Healthcare Mgmt. Servs. LLC, No. 24-2842, 2026 WL 1582064 (3d Cir. June 3, 2026), partially reversed an order of a district court that had awarded damages to the U.S. Department of Labor(“DOL”), which had brought a lawsuit on behalf of 6,000 healthcare employees, alleging various overtime violations under the Fair Labor Standards Act (“FLSA”) by Comprehensive Healthcare Management Services LLC (“Comprehensive”). On appeal, Comprehensive argued that the district court had erred in finding that the FLSA affords a remedy for overtime gap time claims, which address non-overtime hours in a non-exempt employee’s workweek, as well as misapplied a lower burden of proof to some of the claims against it, had erred in its finding that certain employees were nonexempt, and in some of its factual findings. The Third Circuit agreed with the employer in part, and vacated and remanded the matter to the district court.
Case Background
In 2018, the DOL brought a lawsuit in the U.S. District Court for the Western District of Pennsylvania against fifteen nursing and assisted living entities owned and operated by Comprehensive Healthcare Management Services LLC and its chief executive officer, alleging that the defendants had failed to pay hourly employees for all hours worked and the appropriate rate of pay, as well as failing to keep accurate pay records in violation of the FLSA. Id. at *1. One of the claims involved overtime gap time, which occurs when an employee who exceeds the overtime threshold does not receive pay for all non-overtime hours worked. Id.
In January 2024, the district court held a bench trial, following which it ruled in favor of the DOL, finding that there were “system errors” in the calculation of pay. Id. at *2. The district court explained that the defendants’ timekeeping system had not kept an accurate record of employees’ working hours, and Comprehensive paid employees for scheduled hours instead of hours they actually worked, as well as that the system automatically deducted meal breaks, even if employees had worked through them, and that the defendants had failed to accurately pay overtime wages. Id. The district court found that employees were not paid the required one-and-one-half regular rate required under the FLSA, and that the regular rate did not include pay that was required to be calculated in it, including shift differentials, bonuses, and other types of pay. Id. The district court also concluded that some employees had been improperly classified as exempt from the FLSA’s overtime requirement. Id. The district court, noting that the Third Circuit had not yet ruled upon the “viability of overtime gap time claims,” nonetheless awarded $35,804,438.20 in damages against Comprehensive for these violations. Id. at *3. Comprehensive appealed.
The Third Circuit’s Decision
On appeal, Comprehensive argued that the district court had erred in finding that claims for overtime gap time were cognizable under the FLSA. Id. at *3. The Third Circuit noted a disagreement among the circuits, with the Second Circuit having opined that overtime gap time claims were not cognizable under the FLSA in Lundy v. Cath. Health Sys. Of Long Island, Inc., 711 F.3d 106, 115-17 (2d Cir. 2013), while the Fourth Circuit found that they were in Conner v. Cleveland County, 22 F.4th 412, 426 (4th Cir. 2022). Id. Writing for the majority in a split panel decision, Third Circuit Chief Judge Michael A. Chagares explained that “[w]hen the statutory language is clear, the text is the beginning and the end of our inquiry.” Id. at *4. On review of the text of the FLSA, the appellate court found no mention of overtime gap time and concluded that the statute does not provide a remedy to overtime gap claims. Id. In finding that there was no support in the text of the statute for an overtime gap claims, the court of appeals rejected the Labor Secretary’s argument that under § 207 of the FLSA, the term “regular rate” contemplates an overtime requirement, and so requires that a regular rate must be paid for all hours worked. Id. Further, the Third Circuit was unconvinced by the Secretary’s reference to the DOL’s guidance, which stated that overtime under the FLSA requires the payment of all straight time worked during non-overtime hours, finding that this ran counter to the unambiguous text of the Act. Id. at *4-5. Finally, agreeing with the Court of Appeals for the Second Circuit, the Third Circuit determined that individuals seeking to bring such claims could do so under state laws. Id. at *5. Thus, agreeing with Comprehensive, the Third Circuit reversed the district court’s ruling finding that Comprehensive had violated the FLSA by failing to compensate certain employees for overtime gap time. Id.
In reviewing the remaining arguments brought by Comprehensive, the Third Circuit court found that the district court did not err in applying a lower evidentiary burden to the claims against Comprehensive under the Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946) burden-shifting framework, where an employee alleging an employer failed to keep adequate records may do so by producing sufficient evidence prior to the burden being shifted to the employer to counter the claims. Id. at *5-6. Noting that the district court based its findings on the time and pay records produced by Comprehensive, the appellate court concluded that “Mt. Clemens did not affect the analysis for these claims.” Id. at *6. The Third Circuit also found no clear error in the district court’s factual findings or finding of an ongoing pattern or practice of regular rate miscalculation, writing that the single witness that Comprehensive had produced in support of its contention that employees were paid for all hours worked instead of based on their scheduled hours was found to be unreliable by the district court, and that the Secretary of Labor had produced more concrete proof in the form of an investigation, and documentary proof corroborated by hundreds of employees. Id. Next, the Third Circuit affirmed the lower court’s finding that employees at different facilities were regularly not paid for work performed through meal breaks based on a representative sample of employee testimony and the testimony of the company’s regional consultant. Id. at *7.
Finally, the Third Circuit agreed with Comprehensive that the district court’s determination that certain employees were not exempt from the FLSA’s overtime requirements was an error because it had applied the “plain and unmistakable” burden of proof to its analysis, but under the U.S. Supreme Court’s decision in Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018), an employer seeking to prove an employee’s exempt status does so by a preponderance of the evidence, and vacated the part of the lower court’s decision and remanded it for further proceedings. Id. at *8-9.
In a partial dissent, U.S. Circuit Court Judge Jane R. Roth wrote that the text of the FLSA “is far from clear,” and the case law defining a regular rate offered additional confusion that could be addressed by making the actual rate, contracted rate, and regular rate of pay to be the same, aligning with the Fourth Circuit decision in Conner and the U.S. Department of Labor guidance that the majority declined to endorse. Id. at *10-11.
Implications For Employers
Employers with a workforce falling under the FLSA should take heed in ensuring that exempt employees, such as those working in an executive, administrative, or professional capacity, meet the statutory minimums such as salary requirements to qualify as bona fide exempt from overtime requirements. Maintaining accurate pay and time records for exempt and non-exempt workers and conducting regular audits may serve well in defending against miscalculation allegations, as the appellate court here confirmed the lower court’s conclusion based on records provided by the company.
This federal appellate court decision further signals a circuit split on the issue of whether overtime gap time claims are cognizable under the FLSA, with the Third Circuit here joining the Second Circuit in deciding that under the plain meaning of the text they are not, while the Fourth Circuit maintains that the FLSA does offer relief for plaintiffs seeking to bring such claims.
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