A $35.8M ruling just changed who your business can legally call exempt
Employers face new wage risks after a federal appeals court reset overtime exemption standards in a $35.8 million wage-and-hour case.
On June 3, 2026, the US Court of Appeals for the Third Circuit ruled in a wage case the Department of Labor brought against Comprehensive Healthcare Management Services, an operator of 15 nursing, rehabilitation, and assisted living facilities in Pennsylvania. The government sued in 2018 for nearly 6,000 workers, saying the company violated the Fair Labor Standards Act, the federal law that governs minimum wage, overtime, and recordkeeping.
After a bench trial, the District Court ruled for the government and awarded $35,804,438.20. The judge found the company's time clock system logged punches inaccurately or missed them altogether, leaving hundreds of thousands of punches unaccounted for. Workers were often paid for scheduled hours instead of hours actually worked. The system automatically deducted pay for meal breaks even when staff worked through lunch, and the trial court found the process to recover that pay was inconsistently administered and not remotely accurate. Overtime was miscalculated because shift differentials, bonuses, and other additional pay were left out of the regular rate. The judge described these as systemic errors.
Credibility mattered too. The court found the government's 34 employee witnesses clear, consistent, and credible, while concluding the company's witnesses were largely not worthy of belief.
The company did win one important point on appeal. The trial court had awarded pay for overtime gap time – non-overtime hours an employee isn't paid for during a week when they also worked overtime. The Third Circuit held the FLSA does not reach overtime gap time and reversed that piece of the award. The law, the court said, requires only minimum wage and overtime pay; workers wanting more can look to state wage law or a breach-of-contract claim. That puts the Third Circuit opposite the Fourth Circuit and in line with the Second.
The company lost its other main challenges. The appeals court upheld the trial judge's burden of proof and factual findings, and reaffirmed that testimony from a representative sample of workers can establish violations across a much larger group. A small share of witnesses speaking for thousands was enough.
The part HR leaders should circle is the exemption ruling. The trial court decided who was exempt from overtime by reading exemptions narrowly against the employer and requiring proof that workers fit an exemption plainly and unmistakably. The Third Circuit said both standards are out of date. Under current Supreme Court precedent, exemptions get a fair reading, and employers prove exempt status by a preponderance of the evidence. The court vacated that portion and sent it back for the trial judge to apply the right test. Several roles - assistant directors of nursing, maintenance directors, activities directors, nursing supervisors and unit directors, and housekeeping and environmental directors – are back in play.
For HR functions, the takeaways are practical. Faulty time-tracking is a liability magnet. Auto-deducting meal breaks while people keep working invites back-pay claims, particularly when the fix-it process is shaky. Regular-rate calculations must include shift differentials, bonuses, and other added pay. And exempt classifications should be stress-tested against the preponderance and fair-reading standards now, not older ones that courts have abandoned.
