California Employment Law Blog

Employers Should Review Expense Reimbursements in Light of Recent Ninth Circuit Decision

Posted by Timothy B. Del Castillo | Mar 22, 2021 | 1 Comment


Recently, in Clarke v. AMN Services, LLC, the Ninth Circuit found that a per diem benefit paid to traveling clinicians for expenses incurred while working away from home was compensation required to be included in the regular rate of pay for purposes of calculating overtime pay.


Defendant, AMN Services, LLC (“AMN”), is a healthcare staffing company.  Plaintiffs worked as clinicians for AMN and traveled more than 50 miles from their homes to work at various AMN facilities.  In addition to their hourly wages, AMN paid Plaintiffs a per diem amount.  According to AMN, the per diem amount was meant to reimburse Plaintiffs for expenses incurred while traveling on assignment. 

Plaintiffs filed a lawsuit against AMN for violation of the Fair Labor Standards Act (“FLSA”) and the California Labor Code.  Plaintiffs sought unpaid overtime, alleging that the per diem amount AMN paid them was actually wages that should have been included in their regular rate of pay for purposes of calculating their overtime rate.  Both parties filed motions for summary judgment.  The district court granted AMN's motion, and Plaintiffs appealed to the Ninth Circuit.

AMN's Per Diem Benefits Practices

AMN's practice was to prorate per diem payments based on how many hours a clinician worked.  Most clinicians were required to work three 12-hour shifts per week.  If a clinician failed to work the required number of hours, AMN would deduct a proportionate amount from the clinician's weekly per diem benefits, subject to limited exceptions. 

AMN also had a practice of allowing clinicians to “bank hours” if they worked more than the required number of hours per week.  While the clinicians did not receive any additional per diem benefits for working more than the required hours, the “banked hours” could be used to offset any future missed hours or shifts.  If a clinician failed to work more than half of a scheduled shift, the weekly per diem amount was not prorated as long as the clinician had enough “banked hours” to offset the missed hours.

Additionally, AMN employed local clinicians who did not travel more than 50 miles from their homes to AMN facilities.  Local clinicians also received per diem benefits but the amount was included as part of their wages and used to calculate their regular rate of pay for purposes of determining overtime pay.

The Ninth Circuit's Decision

The FLSA requires employers to pay employees one and one-half times their regular rate of pay for any hours over 40 in a workweek.  Amounts paid to reimburse employees for expenses incurred in furtherance of the employer's interests are excluded when calculating employees' regular rate of pay.

The way a payment functions determines whether it may be excluded from the regular rate of pay.  When assessing a payment's function, the connection between the payment and time worked is relative but not determinative.  If a payment varies based on time worked, it more likely functions as compensation rather than reimbursement. 

Other relevant factors include whether the payment is made regardless of any costs actually incurred by the employee and whether the employer requires any evidence of costs incurred.  Additionally, a court may consider the amount of per diem pay relative to the employee's regular rate of pay, as well as whether the per diem is paid regardless of whether the employee travels for work.

The Ninth Circuit's decision turned on how the per diem payments operated.  The court found notable that AMN's policy of pro rata deductions was unrelated to whether the clinician remained away from home incurring expenses.  Most clinicians only worked three 12-hour shifts per week, but they received per diem benefits for seven days.  Because the deductions from the per diem amount were connected to the number of hours worked, the per diem benefits functioned more as compensation than reimbursement.

Additionally, AMN's practice of not prorating a clinician's weekly per diem benefits if the clinician had enough “banked hours” to offset prior missed hours further confirmed to the court that the per diem amounts functioned more as compensation.  According to the court, there was “no plausible connection between working extra hours one week and incurring greater expenses the next.”

Finally, the court found most significant the fact that AMN paid per diem benefits to local clinicians despite their not incurring travel expenses.  According to AMN, the per diem amounts served as incentive for local clinicians to work the required hours.  The court rejected this notion, finding that a monetary incentive to work the required hours applied equally to traveling clinicians.  Indeed, AMN's comparison to local clinicians further supported the court's finding that the per diem benefits paid to traveling clinicians functioned more as compensation.

Because AMN failed to demonstrate that the per diem benefits were properly excluded from Plaintiffs' regular rate of pay, the court reversed summary judgment in AMN's favor.

Significance of the Court's Decision

            Reimbursing employees for business expenses is a common practice.  This decision is troublesome for employers with reimbursement practices similar to AMN's where employees are paid a fixed amount without having to document or provide proof of expenses incurred.  If such payments are deemed compensation instead of reimbursement, employers could face substantial liability.  Employers should scrutinize their reimbursement policies and work with experienced employment counsel to ensure none of the issues addressed in this decision exist.

About the Author

Timothy B. Del Castillo

Tim Del Castillo is Founding Partner of Castle Law: California Employment Counsel, PC.


Sam Reply

Posted Dec 08, 2021 at 13:03:34

Than you for this insightful article! I’m hoping to read more!

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