A recent federal appellate decision is redefining the limits of wage-and-hour liability—while reinforcing that compliance risks remain firmly in place.

On June 3, 2026, the U.S. Court of Appeals for the Third Circuit held that the Fair Labor Standards Act (FLSA) does not allow recovery of “overtime gap time.”

While the ruling narrows the scope of federal wage claims, it does not eliminate employer exposure—it simply shifts it into other legal frameworks, including state law and contract claims.

What Is “Gap Time”?

“Gap time” generally refers to hours worked that are not compensated by the employer. It falls into two categories:

1. Pure Gap Time

Unpaid straight-time hours in a week where the employee does not work overtime.

Example:

• Employee works 35 hours at $20/hour
• Paid for only 30 hours ($600 total)
• Effective hourly rate:
  • $600 ÷ 35 = $17.14/hour

👉 Because the Regular Rate of Pay exceeds the Federal minimum wage for the hours actually worked, there is:

• ❌ No FLSA minimum wage violation
• ❌ No FLSA claim for the unpaid 5 hours

2. Overtime Gap Time

Unpaid straight-time hours in a week where the employee works more than 40 hours.

Example:

• Employee works 45 hours
• Paid for only 38 hours
• Missing 2 hours fall below overtime threshold

👉 The central question: Can those unpaid non-overtime hours be recovered under the FLSA?

The Third Circuit’s Answer: A Clear Boundary

The Third Circuit answered with a definitive no.

The court emphasized that the FLSA requires only:

• Minimum wage under Section 206
• Overtime premiums under Section 207

It “does not contemplate overtime gap time.”

What this means in practice:

• If total weekly pay still averages at least minimum wage for all hours worked
• Then no FLSA claim exists for unpaid straight-time hours—even in overtime weeks
• The only recoverable federal claim is for any unpaid overtime premium
  

A Direct Challenge to DOL Authority

A key aspect of the decision is its rejection of longstanding Department of Labor (DOL) guidance.

The DOL had argued:

• Employees must be paid their “regular rate” for all hours worked before overtime is calculated

The court disagreed, stating:

• The FLSA’s text does not support that interpretation
• The agency’s guidance was unpersuasive and not entitled to deference

This reinforces a broader trend: 👉 Courts are relying more heavily on statutory text rather than expanded agency interpretations.

Understanding the “Regular Rate” Impact

The ruling also highlights how overtime is calculated when some hours go unpaid.

The regular rate is determined as:

Total Compensation ÷ Total Hours Worked = Regular Rate

Illustration:

• Employee works 45 hours
• Paid $800 (for 40 hours at $20/hour)
• Actual regular rate becomes:
  • $800 ÷ 45 = $17.77/hour

Overtime is then calculated using this lower rate, meaning:

• Employer owes additional half-time for overtime hours
• But not the unpaid straight time wages under the FLSA

Therefore; $17.77(0.5) = $8.89 (correct OT Premium) versus $20.00 (0.5) = $10.00 (flawed OT Premium)

Important Caveat: Liability Has Not Disappeared

Although the ruling narrows federal claims, it does not eliminate wage liability.

The court made clear:

• State wage laws
• Contract theories

In the underlying case:

• Inaccurate timekeeping
• Auto-deducted meal breaks
• Off-the-clock work

Bottom line: The decision narrows the scope of the FLSA but does not lessen the need for compliance.

Where Employers Still Face Risk

The facts behind this case—and related examples—highlight several recurring compliance risks:

Auto-Deducted Meal Breaks

If employees are not fully relieved of duty, the time is compensable. This is a common issue in healthcare and support roles.

Inaccurate Timekeeping and Rounding

Systems that default to scheduled hours or consistently favor the employer can create liability exposure and evidentiary challenges.

“Engaged to Wait” Time

Time when employees are required to stay onsite (even during downtime), ready to go at a moment’s notice, is often compensable if not free to leave.

Weak Documentation

Lack of clear records for pay rates, changes in compensation, and time worked can increase exposure during disputes.

A Growing Circuit Split

The Third Circuit now aligns with the Second Circuit in rejecting overtime gap time claims, while:

• The Fourth Circuit has taken a more expansive approach, deferring to DOL guidance

👉 This split increases the likelihood of future Supreme Court review

What This Means for Employers

1. Federal Law Has Defined Limits

The FLSA remains focused on minimum wage and overtime premiums, not full compensation for all hours worked.

2. State Law Is More Important Than Ever

Employers must evaluate state wage-and-hour laws and contract obligations as these may allow recovery for unpaid straight-time wages.

3. Recordkeeping Is Critical

Accurate records reduce liability risk, support proper wage calculations, and help defend against claims.

4. Overtime Calculations Must Be Precise

Even under narrower FLSA interpretations, errors in calculating the regular rate or overtime premium remain high-risk issues.

The Bottom Line

The Third Circuit’s decision represents a clear boundary-setting moment for the FLSA.

It confirms:

• The FLSA guarantees:
  • ✅ Minimum wage
  • ✅ Overtime premium
  • ❌ Not full payment of all hours at the agreed rate
• Both pure gap time and overtime gap time claims fall outside the statute when minimum wage is satisfied

As a result, claims for unpaid straight-time wages, when there are no Minimum Wage violations, must now be pursued under:

• State Employment Agencies
• Contract theories
• Private Right of Action

For employers, the takeaway is straightforward:
Strong pay practices, accurate timekeeping, and clear documentation remain essential—because while federal liability may be narrower, overall compliance risk is not.

Author: Emmi Gaytan & Britney Reyes

Editor: Angela Hendrix, Aaron Ramos, Jennifer Loya, & Luis Decker