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Third Circuit delivers employer-friendly FLSA ruling: No federal recovery for “overtime gap time” claims

6/9/26

By: Sunshine Fellows and Joseph McGuire

In a closely watched wage-and-hour decision, the U.S. Court of Appeals for the Third Circuit narrowed the scope of potential liability under the Fair Labor Standards Act (FLSA), holding that employees cannot pursue federal claims for so-called “overtime gap time.” In Secretary United States Department of Labor v. Comprehensive Healthcare Management Services LLC, No. 24-2842, 2026 WL 1582064 (3d Cir. June 3, 2026), the court reversed a portion of a $35.8 million judgment that had awarded damages for unpaid straight-time hours worked during weeks in which employees also worked overtime.

At its core, the decision reinforces a straightforward point: the FLSA is limited to ensuring employees are paid minimum wage and proper overtime; it is not a catch-all for every unpaid wage claim. This clarification gives employers helpful guidance when defending FLSA cases.

What was the case about?

The case arose from a Department of Labor investigation into a healthcare operator that owned and managed multiple nursing, rehabilitation and assisted-living facilities throughout Pennsylvania. Following a lengthy investigation, the Department sued on behalf of nearly 6,000 employees, alleging widespread FLSA violations, including inaccurate timekeeping, automatic meal-break deductions that failed to account for work performed during breaks, overtime calculation errors and employee misclassification issues. After a bench trial, the United States District Court for the Western District of Pennsylvania largely sided with the Department and awarded more than $35 million in damages. Notably, the district court also awarded damages for “overtime gap time,” compensation for unpaid non-overtime hours worked in a week in which the employee also exceeded 40 hours and earned overtime compensation.

The Third Circuit’s decision

The Third Circuit affirmed much of the district court’s ruling but rejected its conclusion regarding overtime gap time. Relying on the text of the FLSA, the court held that the statute provides remedies for two types of violations: failure to pay minimum wage and failure to pay overtime premiums. Because “overtime gap time” involves unpaid straight-time hours, not minimum wage violations or unpaid overtime premiums, the court concluded that it does not fall within the statute. In other words, employees cannot use the FLSA to recover that category of wages.

In reaching this conclusion, the Third Circuit aligned itself with the Second Circuit’s decision in Lundy v. Catholic Health System of Long Island, Inc., 711 F.3d 106 (2d Cir. 2013), and declined to follow the Fourth Circuit’s broader interpretation in Conner v. Cleveland County, 22 F.4th 412 (4th Cir. 2022). The court also rejected the Department of Labor’s longstanding interpretive guidance on overtime gap time, finding that the agency’s position lacked sufficient support in the statutory text. At the same time, the court upheld findings relating to recordkeeping failures, unpaid meal-break work and overtime-rate miscalculations. In addition, the court concluded that the district court applied outdated legal standards when analyzing FLSA exemptions and remanded that issue for reconsideration under current Supreme Court precedent, including Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018), and E.M.D. Sales, Inc. v. Carrera, 604 U.S. 45 (2025).

Why this decision matters for employers

This decision significantly limits one category of potential federal wage-and-hour exposure within the Third Circuit. Employers defending FLSA claims now have strong authority to challenge attempts to recover unpaid straight-time wages through an overtime-gap-time theory. Nevertheless, employers should not view the decision as reducing the importance of wage-and-hour compliance. The court left intact substantial findings involving inaccurate recordkeeping, automatic meal-period deductions, overtime calculation errors and exemption disputes. These issues continue to generate significant liability. Moreover, the court emphasized that employees may still pursue unpaid straight-time wages through state-law wage-payment statutes, minimum wage laws or breach-of-contract theories. As a result, employers should continue to evaluate payroll practices holistically rather than focusing solely on federal law compliance.

Key takeaways

The Third Circuit’s decision in Secretary United States Department of Labor v. Comprehensive Healthcare Management Services LLC provides welcome clarity regarding the limits of FLSA remedies while simultaneously reinforcing the importance of robust wage-and-hour compliance programs. Employers should review timekeeping systems, meal-break practices, overtime calculations, and exemption classifications to ensure they align with current federal and state law requirements. Although the court narrowed the scope of recoverable damages under the FLSA, the decision serves as a reminder that significant exposure can still arise from systemic payroll, recordkeeping and classification errors. Employers operating within the Third Circuit should take this opportunity to assess compliance practices and update policies where necessary.

For more information on this topic please contact Sunshine Fellows, Joseph McGuire or your local FMG attorney.

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.