On June 3, 2026, the U.S. Court of Appeals for the Third Circuit issued a significant precedential decision in Secretary U. S. Department of Labor v. Comprehensive Healthcare Management Services LLC, No. 24-2842, 2026 WL 1582064 (3d Cir. June 3, 2026), narrowing the scope of wage-and-hour liability under the Fair Labor Standards Act (FLSA). The court held that employees cannot recover “overtime gap time” wages under the FLSA, aligning with the Second Circuit and rejecting the broader interpretation adopted by the Fourth Circuit.
The case involved an enforcement action brought by the Secretary of the U.S. Department of Labor against Comprehensive Healthcare, a Pennsylvania employer and its related entities. The Third Circuit includes Pennsylvania, New Jersey, Delaware, and the Virgin Islands.
The employer owned and operated 15 residential nursing, rehabilitation, and assisted living facilities and was accused of widespread FLSA violations affecting nearly 6,000 employees. Following a bench trial, the district court awarded more than $35.8 million in damages, including compensation for alleged unpaid overtime resulting from the miscalculation of the regular rate, as well as misclassification of certain employees, meal-break violations, and overtime gap time.
On appeal, the Third Circuit reversed in part, affirmed in part, and remanded, addressing several significant FLSA issues. Aside from reversing the overtime gap time award and remanding the exemption analysis, the Third Circuit affirmed the district court’s rulings that the employer had violated the FLSA, its factual findings, and the bulk of the damages award.
Key Holding: No “Overtime Gap Time” Claims Under the FLSA
The central issue was whether employees may recover for “overtime gap time” — that is, non-overtime hours worked but not paid correctly in a pay period when an employee has worked overtime hours.
For example, consider a nonexempt employee whose regular rate of pay exceeds the minimum wage. If the employee works 43 hours in a workweek but is paid for only 38 hours of straight time and three hours of overtime, the employee remains unpaid for two hours of non-overtime work. A claim seeking recovery for those unpaid hours constitutes an overtime gap time claim.
The Third Circuit held that the FLSA does not provide a remedy for this type of claim.
The Court’s Reasoning
The court based its decision in the text of the statute. The FLSA requires employers to pay:
- Minimum wage for all hours worked; and
- Overtime compensation for hours worked over 40 per week.
It concluded, however, that “the plain text does not contemplate a remedy for overtime gap time.” Because the employees were paid well above minimum wage for the non-overtime hours, when the court averaged the amount paid for all hours worked in a week it was clear that the employees were paid more than the minimum wage for the non-overtime hours. They were not paid what the employer agreed to pay them, but that is not what the FLSA is designed to compensate. As shown above, the plain language of the statute only provides remedies for employees who do not receive minimum wage or overtime compensation.
Practical Impact: Limits on Federal Wage Claims
The Third Circuit emphasized that, although overtime gap time claims are not cognizable under the FLSA, plaintiffs are not left without recourse and may instead pursue:
- State wage-and-hour claims; or
- Breach-of-contract claims.
This distinction is critical for litigation strategy:
- Plaintiffs may need to rely more heavily on state-law claims for unpaid straight-time wages.
- Employers face reduced exposure under federal law for certain underpayment scenarios.
Split with Other Circuits
The decision deepens an existing circuit split. The Second Circuit does not recognize overtime gap time claims, while the Fourth Circuit permits them.
The Third Circuit declined to follow the Fourth Circuit, reasoning that congressional silence does not create ambiguity and does not authorize courts to expand the statute beyond its plain terms.
Other Key Takeaways
Although the court’s most significant holding was that overtime gap time claims are not permitted under the FLSA, the decision includes several additional rulings worth noting.
No Error in Applying Mt. Clemens Framework
The employer argued that the district court improperly relied on the Anderson v. Mt. Clemens Pottery Co. burden-shifting framework — which allows damages to be approximated when an employer’s records are inadequate — to resolve all of the secretary’s claims. The Third Circuit rejected that argument, finding:
- The district court’s damages analysis for the challenged claims was based on the employer’s own time and payroll records, not on approximations derived from burden-shifting framework;
- The secretary’s damages model relied on those records to determine hours worked and calculate back wages for both pay-by-schedule and regular-rate claims;
- The district court explicitly noted that the damages awarded “were based upon Defendants’ own time and pay records”; and
- To the extent the district court suggested the Mt. Clemens framework applied broadly, any such misstatement was harmless error because it did not affect the outcome.
Factual Findings Upheld
The court affirmed key factual findings that:
- The employer failed to maintain accurate time records;
- Employees were often paid based on scheduled hours rather than actual hours worked;
- Employees were not paid for meal-break work; and
- Overtime rates were miscalculated by the employer, including its failure to calculate the regular rate correctly when bonuses, shift differentials, and other forms of compensation were excluded.
The court found these conclusions were supported by credible, representative employee testimony, even though only a subset of employees testified.
Exemption Analysis Vacated and Remanded
The Third Circuit vacated part of the ruling concerning FLSA exemptions, finding the district court applied outdated legal standards. Specifically, it found that:
- The district court improperly construed exemptions narrowly against the employer; and
- It required proof that employees “plainly and unmistakably” met exemption criteria.
The court clarified that exemptions must be given a “fair reading.” It further found that employers must prove exemptions by a preponderance of the evidence, not a heightened standard. The court vacated this portion of the decision and remanded for so that the district court could apply the correct legal standards and make additional factual findings.
Summary of Opinion
Reduced Federal Exposure
Employers in the Third Circuit face no FLSA liability for overtime gap time, limiting damages in wage-and-hour actions.
State Law Still Matters
Employers remain exposed under state wage laws and contract principles for unpaid straight-time wages.
Revisit Exemption Classifications
The remand underscores the need to ensure that exemption classifications are consistent with current Supreme Court precedent, which requires that FLSA exemptions be given a “fair reading.”
Representative Testimony Can Drive Large-Scale Liability
The court reaffirmed that plaintiffs can prove violations based on a sampling of employees rather than each affected employee.
Key Takeaways for Employers
With a clear circuit split, the issue of overtime gap time claims may be ripe for review by the U.S. Supreme Court.
Until that happens, employers can take steps to mitigate risk, including:
- Auditing timekeeping systems to ensure they accurately capture all hours actually worked;
- Avoiding automatic meal-time deductions, especially when employees routinely work through these breaks;
- Reviewing pay practices to confirm proper calculation of the regular rate, including bonuses and other compensation; and
- Evaluating and updating exemption classifications to align with current Supreme Court precedent and the “fair reading” standard.
By addressing these areas, employers can better position themselves to reduce risk and defend against wage-and-hour claims, even as the legal landscape continues to evolve.
