Philadelphia, Pennsylvania — A federal appeals court has handed nursing home operators a major win, ruling that a category of overtime lawsuit the Labor Department has aggressively pursued isn’t actually allowed under federal wage law.
The Third Circuit Court of Appeals issued the 2–1 decision on June 3, partially reversing a $35.8 million judgment against Comprehensive Healthcare Management Services, a Pennsylvania-based operator of 15 nursing, rehab, and assisted living facilities. The case sprang from a 2017 Department of Labor investigation that grew into a sweeping Fair Labor Standards Act claim covering nearly 6,000 workers.
At the heart of the ruling is something called “overtime gap time.” That’s the technical term for unpaid hours that fall short of the 40-hour overtime threshold during weeks when an employee did work overtime. Picture an employee who puts in 43 hours but gets paid for 38 regular hours plus three hours of overtime. The five missing hours are the gap.
What the court actually said
Chief Judge Michael Chagares, writing for the majority, said the FLSA’s text simply doesn’t support gap-time claims. The statute requires employers to pay minimum wage and overtime, but it doesn’t guarantee a particular pay rate for every regular hour worked, the court found. The judges declined to defer to longstanding Labor Department guidance that pushed the opposite reading, calling the agency’s interpretation unpersuasive.
The decision carves out a meaningful slice of liability that providers in Pennsylvania, New Jersey, and Delaware have spent years bracing against. The DOL has aggressively targeted gap-time claims in this circuit, and operators with thin margins say the threat of bundled, multi-year claims has been a constant pressure point alongside other labor and benefits costs squeezing nursing home workers and operators alike.
Comprehensive Healthcare didn’t walk away clean, though. The appellate court left intact several findings against the company, including that it paid workers based on scheduled hours rather than hours actually worked, that employees often worked through unpaid meal breaks, and that the operator miscalculated overtime by leaving shift differentials and bonuses out of the regular rate.
A second win on classification
The court also handed the operator a partial victory on a separate issue: whether certain employees were properly classified as exempt from overtime. The district court had used outdated standards, requiring the employer to prove exempt status “plainly and unmistakably.” The Third Circuit said that’s the wrong test under recent Supreme Court guidance. Exemptions get a fair reading, the appeals court said, and an employer only has to prove the case by a preponderance of the evidence. That issue heads back to the lower court for reanalysis.
One thing didn’t change. The appellate panel was comfortable with the trial court’s use of testimony from 14 employees to support findings affecting all 6,000 workers. Operators hoping a small witness pool would tank a class-wide ruling don’t have much to celebrate there.
Judge Jane Roth dissented in part on the gap-time question, arguing the term “regular rate” in the FLSA is ambiguous and should be read to require employers to pay all 40 hours of straight time before the overtime calculation kicks in. Her view didn’t carry the day.
For nursing home operators in the Third Circuit, the takeaway is straightforward. One avenue of FLSA exposure just narrowed considerably. The other avenues — recordkeeping, meal break compensation, regular rate calculations — haven’t budged.
Photo: Pexels
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