On February 8, 2021, the Ninth Circuit Court of Appeals released its opinion on a case that many have been following, Clarke v AMN. This is a rather important case that can influence the way future compensation packages for travelers are constructed.
The parties brought suit against AMN alleging that the overtime rate should be inclusive of the hourly per diems. The rationale is that since the per diems were being withheld by the hour for time missed, that they were the equivalent of wages, and since they are being calculated in a similar fashion as wages, they should be included in the baseline for calculating overtime. The per diems were in essence a wage substitute.
There are a couple things to note from this:
- One of the fears during the litigation was that the IRS would capitalize on a decision like this and begin treating all per diems as taxable compensation. The Clarke case wasn’t the only one addressing the practice of garnishing per diems by the hour, in fact there were over four separate ones including one in another circuit that involved a trucking company with a similar practice. In the Clarke case, that concern was rather glossed over during litigation, as the focus was strictly on the overtime. However, one can imagine that since the reimbursements are now part of the overtime rate, that the IRS could make the assertion that the per diems are wages and therefore subject to income and payroll tax. Why would they not pursue the additional tax revenue.
- The Ninth Circuit of appeals is one step away from the Supreme Court. For AMN to appeal this would require a trip to Washington. There are reasons that this might be necessary. Other circuits have taken similar facts and that ruled that the overtime did not have to include the reimbursements/per diems when they were withheld due to missed hours. When decisions in separate circuits reach different conclusion, it creates a friction that can only be resolved at a higher court level, hence the Supreme Court in this case. There is risk and then there is the expense of pursuing such a path.
- I am not an attorney, so I do not claim any kind of magic knowledge, but I do have my speculations. One of those is that agencies in the future might be a little more circumspect with the facilities that they are willing to staff and the travelers they are willing to employ. If an agency is aware that a provider/nurse has chronically called out on her shifts in previous contracts, they may be less likely to risk hiring her. Conversely, facilities often are the biggest culprits since they routinely cut shifts and send traveler’s home. Some facilities are notorious for this, leaving the agencies in a quandary with the missed revenue. Just like individuals have to eat, companies have to earn revenue to survive. We may see some agencies being way more selective in the places that the staff.
- Then there is the most likely scenario. That is scrapping the clawbacks (the act of withholding per diem payments when hours are missed). There are a couple ways that this can be done in one of them involves a system that I have always proposed, and that is to penalize for the missed hours but still paying the full per diem. The penalty for the missed time would not reflect monetary equivalent of an hourly per diem but would more reflect the actual cost incurred by the agency for the missed time.
- A last item unrelated to the narrow context of the decision, is the introductory language in the summary on the first page which sites the age-old monster called the 50-mile rule. The case doesn’t necessarily address this, but it does bring it to focus in a negative context, since some of the evidence presented in Clarke involved the rather loose association with the mileage threshold and automatic approval to receive tax-free allowances and per diems. Just because I drive 50 miles doesn’t mean that I incurred lodging expenses, although driving more than 50 miles to my assignment means I am more likely to do so – but it’s no assurance that I would. This has always been the rationale for the 50-mile rule in that it is an easy benchmark to use for an agency with so many contracts to administer. In the end, the focus should not be on the distance, but on the expense and if it actually occurred.
As always, we will post any additional developments on our blog. For now, we will wait to see how AMN will respond. The case was remanded to the lower court so after those deliberations are completed, we will see if an appeal is made.