On July 27, 2026, the Seventh Circuit (covering Illinois, Indiana, and Wisconsin) issued a significant wage and hour decision affirming summary judgment for an employer in a class and collective action arising out of its alleged failure to pay overtime in violation of the Fair Labor Standards Act (FLSA) and Wisconsin law.
Case Background
In Nichole Lutz v. Froedtert Health Inc., Lutz filed suit in the U.S. District Court for the Eastern District of Wisconsin, alleging that her employer violated the FLSA and Wisconsin law on two grounds. First, she argued that Froedtert Health failed to properly include shift differentials, premiums, and other types of nondiscretionary pay when calculating employees’ regular rate of pay in determining overtime compensation owed. Second, Lutz claimed that Froedtert Health wrongfully excluded holiday pay from the regular rate calculation. The district court granted summary judgment in favor of Froedtert Health, holding that Froedtert Health properly calculated its employees’ regular rates and overtime premiums under the FLSA and Wisconsin law. Lutz appealed to the Court of Appeals for the Seventh Circuit.
Calculation of Overtime Compensation
The FLSA requires that employees receive overtime pay for any hours worked beyond 40 hours in a workweek that is 1.5 times their “regular rate.” See 29 U.S.C. § 207(a)(1).
Froedtert Health calculated its employees’ regular rate by dividing each employee’s total weekly remuneration—including shift differentials and certain bonuses and premiums—by the total number of hours worked during that week (including overtime hours). It then multiplied the total number of overtime hours worked by 0.5 times the regular rate to determine the overtime premium amount owed to employees, which Froedtert Health paid in addition to any remuneration that employees actually earned during those hours. Lutz challenged this approach, arguing on appeal that employers should segregate nonovertime hours from overtime hours and separately calculate an employee’s total overtime pay by multiplying the number of overtime hours worked by 1.5 times the regular rate, regardless of the remuneration the employee would have earned during those hours absent the overtime designation.
The Seventh Circuit rejected Lutz’s argument and held that Froedtert Health’s methodology complied with the FLSA. According to the court, the appropriate approach for calculating the “regular rate of pay” is to use all remuneration earned by the employee during the workweek (minus statutory exclusions) and then use that rate to calculate the amount of overtime premium pay owed to the employee—not the employee’s total overtime pay. The court emphasized that this “aggregate” methodology is most consistent with the text of the FLSA, U.S. Department of Labor regulations, and cases from other courts.
The court also noted that Lutz’s approach could disproportionately favor employees who earn shift differentials and certain bonuses and premiums during the first 40 hours of the workweek. For example, under Lutz’s approach, an employee who receives shift differential pay only during her overtime hours would not get the full benefit of including that additional remuneration in her total overtime pay. Conversely, under Froedtert Health’s methodology, two employees who work the same total hours and receive the same shift differentials are paid equally regardless of when those hours occur.
Exclusion of Holiday Premiums from the Regular Rate of Pay
The court further held that Froedtert Health properly excluded holiday premium pay when calculating its employees’ regular rate. Under the FLSA, “extra compensation provided by a premium rate” for holidays may be excluded from the regular rate calculation if the total premium rate is at least 1.5 times the “bona fide rate” for similar work performed during the regular workweek on other days. The court held that Froedtert Health properly excluded the holiday premiums from its calculation of the regular rate because the total pay rate for holidays was greater than 1.5 times the employees’ bona fide rates. As such, Froedtert Health did not violate the FLSA.
Application of Wisconsin State Law
Lutz also alleged that Froedtert Health’s approach to calculating the regular rate described above violated Wisconsin law in addition to the FLSA. The Seventh Circuit disagreed. Wisconsin’s overtime statutes use terminology similar to the FLSA, and Wisconsin courts frequently look to federal wage and hour principles when interpreting state law, particularly in situations like this one where state law is silent on the issue at hand. Accordingly, the Seventh Circuit concluded that Froedtert Health’s overtime and holiday pay methodologies complied with both federal and Wisconsin law.
Key Employer Takeaways
The Seventh Circuit is not often asked to weigh in on wage and hour issues, so its decision in Lutz provides valuable guidance for employers of hourly workers, particularly those that pay shift differentials, holiday premiums, and other forms of bonuses and premiums. Employers should remain diligent and ensure that their pay structure and underlying calculations align with the FLSA, but also be cognizant that (1) state law sometimes departs from the FLSA (as we previously discussed here and here), and (2) an employer could be held liable for violating state overtime rules even when they otherwise comply with the FLSA.
