Third Circuit Rejects “Overtime Gap Time” Claims Under FLSA

In a significant development for employers in the Third Circuit, the U.S. Court of Appeals for the Third Circuit recently held that the FLSA does not permit recovery of “overtime gap time” wages. While the decision limits the scope of federal wage-and-hour liability in the Third Circuit, it leaves open the possibility of state law and contract remedies. 

Background

The case arose from a U.S. Department of Labor (DOL) enforcement action against a group of healthcare facilities operating across Pennsylvania. Following a bench trial, the district court found violations of the FLSA affecting thousands of employees and awarded more than $35 million in damages. 

The alleged violations included inaccurate timekeeping systems, payment based on scheduled hours rather than actual hours worked, and automatic meal break deductions despite employees working through those breaks, among other claims. 

In addition to awarding back wages for minimum wage and overtime violations, the district court permitted recovery for “overtime gap time”—defined as unpaid straight-time hours worked in weeks when employees also worked overtime. This was an issue of first impression for the Third Circuit, as it had not previously addressed whether such claims are cognizable under the FLSA.

No Recovery for Overtime Gap Time

On appeal, the Third Circuit reversed the district court’s award of overtime gap time damages, holding that such claims are not cognizable under the FLSA. 

Writing for the majority, Chief Judge Chagares distinguished between “pure” gap time and “overtime” gap time. In a “pure” gap time case, the employee alleges unpaid work in a week without overtime (e.g., the employee worked 38 hours on the clock and 2 hours off the clock). In such a case, the Third Circuit previously held that as long as the wages paid for the on-the-clock hours are enough to cover all hours worked at a rate of at least the minimum wage, there could be no FLSA claim for the “gap” between the paid and unpaid hours since the wages paid for the week satisfied the minimum wage obligation for all hours worked (even the off-the-clock hours).

An “overtime” gap time involves unpaid straight-time hours in weeks where the employee works more than 40 hours (e.g., if the employee worked 38 hours on the clock and 5 hours off the clock). The court rejected the DOL’s position that in such cases, the employee must first receive compensation for the “gap” in non-overtime off-the-clock hours at their regular rate before receiving their overtime wages. 

The court held the FLSA’s text is clear: employers are required to pay (1) minimum wage under Section 206 and (2) overtime premiums under Section 207, but the statute “does not contemplate overtime gap time.” 

The court rejected the DOL’s position—grounded in its own guidance and arguments related to public policy—that employees must be paid their “regular rate” for all hours worked before overtime is calculated, finding that “the statutory text simply does not support that inferential leap.” The court concluded that the FLSA’s requirements are limited to minimum wage and overtime and should not be expanded beyond the statute’s plain terms. 

As a result, employees cannot recover unpaid wages for non-overtime hours worked under the FLSA—even in overtime weeks—so long as the wages paid are enough to cover all hours worked at the minimum wage. In such a case, the employee’s only FLSA remedy is for any unpaid overtime compensation. As for non-overtime hours, the court held that employees may have remedies under state law or contract theories. 

Partial Dissent Finds “Regular Rate” Ambiguous

Judge Jane Roth dissented from the majority’s rejection of overtime gap time claims. She concluded that the FLSA’s use of the term “regular rate” is ambiguous, reasoning that it is unclear whether the term refers to the rate the employer agreed to pay or the rate actually paid in practice.

In Judge Roth’s view, this ambiguity should be resolved by requiring employers to compensate employees for all straight-time hours—up to 40—before calculating overtime, ensuring that the “regular rate” reflects the agreed-upon wage. She also would have deferred to the DOL’s longstanding guidance under Skidmore, which supports recovery for overtime gap time. 

The majority addressed this argument in a footnote, agreeing that the contracted, actual, and regular rates ideally should align, but framing the issue differently. The court emphasized that the relevant question is what happens when those rates diverge due to employer error—and whether the FLSA provides a remedy. The majority concluded that it does not.

Employer Takeaways

This decision provides important guidance for employers operating in the Third Circuit.

Employers should take note of the following:

• Federal exposure narrowed: As long as employees receive at least the FLSA minimum wage for all hours worked, they cannot recover unpaid wages for non-overtime hours worked under the FLSA, even in overtime weeks.
• State law risk remains: Employees may pursue these claims under state wage laws or contract theories, making compliance with state requirements critical.
• Circuit split deepens: The federal courts of appeals are not aligned on this issue, with the Third Circuit joining the Second Circuit in rejecting overtime gap time claims and the Fourth Circuit deferring to the DOL’s position.
• Recordkeeping remains essential: Inaccurate or unreliable timekeeping systems can drive liability and shift evidentiary burdens in wage-and-hour litigation.
• Overtime calculations must be complete: Employers must ensure that all required forms of compensation are included in the regular rate.

The decision underscores that while the FLSA’s scope has limits, employers face continued—and potentially significant—exposure from systemic pay practices and compliance failures.