The U.S. Court of Appeals for the Second Circuit has ruled that the Fair Labor Standards Act ("FLSA") requires employers to pay one-and-a-half times the regular rate of pay as compensation to employees who perform overtime work even though the work was not authorized and was in violation of company policy.
Chao v. Gotham Registry, Inc.

Gotham matches nurses with hospitals that have temporary vacancies or need additional nursing staff during peak periods. Gotham has little to do with the relationship after making the match except to pay the nurses from compensation it receives from the hospitals.

After consulting with outside attorneys, Gotham printed the following on nurses' time sheets: "You must notify GOTHAM in advance and receive authorization from GOTHAM for any shift or partial shift that will bring your total hours to more than 40 hours in any given week. If you fail to do so, you will not be paid overtime rates for those hours."

Even though many of the nurses did not seek pre-authorization, Gotham tried to negotiate larger fees with the hospitals to compensate appropriately those nurses who worked overtime. If it succeeded, Gotham passed on the overtime wage premiums to the nurses. Nine times out of ten, the hospitals did not agree to pay a higher rate.

Judge Richard J. Cardamone, writing for the majority, set out to determine not only if the court should hold Gotham in contempt, but also if overtime work an employer has "prohibited and does not desire" is subject to the FLSA. Noting that the FLSA does not define "work," the court looked to Supreme Court precedent and explained, "work is an exertion or loss of an employee's time that is (1) controlled or required by an employer, (2) pursued necessarily and primarily for the employer's benefit, and (3) if performed outside the scheduled work time, an integral and indispensable part of the employee's principal activities." Under the FLSA, "employ" means "to suffer or permit to work," Judge Cardamone added.

Although the Second Circuit held that Gotham was required to pay overtime wage premiums even when company policy restricted overtime work, it did not find Gotham to be in civil contempt.