Category Archives: Salary Basis

May 1, 2011 · 11:25 am

M.D.La.: Defendant Not Entitled to FWW in Salary Misclassification Case, Where Failed to Pay Plaintiff “Fixed Salary” as Required by 778.114

McCumber v. Eye Care Center of America, Inc.

This case was before the court on the parties cross-motions seeking summary judgment.  As discussed here, the court held that Plaintiff’s unpaid overtime damages, if any, were to be calculated using the FLSA’s default time and a half methodology, rather than the fluctuating workweek (“FWW”) methodology.  Although the Defendant claimed it was entitled to use the FWW to calculate Plaintiff’s damages, due to the fact that Plaintiff was salaried misclassified, the court disagreed.  The court held that Defendant had failed to pay Plaintiff a “fixed salary” as required for application of 29 C.F.R. § 778.114, because  the evidence showed that Defendant docked Plaintiff’s pay on at least 2 occasions when Plaintiff worked fewer than 40 hours in a workweek.

Reviewing the parties’ respective arguments and holding that any damages ultimately found due were to be calculated at time and a half, the court reasoned:

“Defendants’ motion for partial summary judgment seeks judgment in its favor declaring that any wages found to be due plaintiff in this case shall be calculated using the fluctuating workweek method (“FWW method”) pursuant to 29 C.F.R. § 778.114.  Subsection (a) of the provision at issue instructs that

‘[a]n employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid him pursuant to an understanding with his employer that he will receive such fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many.’

Under the FWW method, the amount of overtime owed to such an employee is paid at the rate of one-half-time pay, rather than one-and-a-half-time pay. The reason for this is that, according to the salary agreement among the parties, all the hours worked by the employee have already been compensated at straight-time pay and, thus, these hours are only shortchanged by half-time pay, rather than completely uncompensated.

In order to calculate the amount actually due under the FWW method, the fixed weekly salary is divided by the number of hours actually worked in a particular week. The resulting sum is the employee’s “regular rate of pay.” An employee found to be due overtime pay would be paid one half of the regular rate of pay for each hour of overtime worked in that particular week. While the regular rate of pay decreases as hours worked each week increase, the fixed salary must be sufficient such that the regular rate of pay never falls below the minimum wage requirement of 29 U.S.C. § 206(a)(1).

In addition to the requirement that the minimum wage requirement be sustained by the regular rate of pay calculation, the employer who has allegedly misclassified a position as exempt under the FLSA bears the burden of proving that there existed a “clear mutual understanding” among the employer and employee that the fixed weekly salary is compensation for the hours worked in any given workweek, no matter how few or many, in order to impose the FWW method for calculating overtime due.

Defendants argue that “it is undisputed that [p]laintiff was classified as exempt under the FLSA and was paid a fixed salary of $40,000 per year, regardless of the hours he worked.”  Defendants point to plaintiff’s testimony that he was “usually paid a set amount in each paycheck” and “often worked before and more often after the time set on the schedule” as evidence that plaintiff and defendants were parties to a “clear mutual understanding” that his salary was fixed, despite his varying hours .

The court has examined plaintiff’s written statement, as cited by defendants, and finds that the citation offered by defendants quotes only a portion of plaintiff’s statement. In its entirety, the passages cited by defendants reads

22. I was usually paid a set amount in each paycheck, plus production and other bonuses.

23. The weekly schedule made by the store manager was the minimum time I was expected to work. I often worked before and more often after the time set on the schedule when there were orders to fill or equipment to maintain or repair, or when I had to drive to one of the other labs in the district to repair or maintain equipment. I was also frequently called in to repair machinery on my days off.

Plaintiff asserts that he was not party to a “clear mutual understanding” as is required for application of the FWW method. Plaintiff points out that, on at least two occasions, his biweekly paycheck was reduced by 8 hours so that he was paid for only 72 hours, though he is usually paid for 80 hours.  Plaintiff argues that, pursuant to 29 C.F.R. 778.114(c), the FWW method is inapplicable in the instant case because subsection (c) clearly instructs that the employer must pay the salary agreed to by the parties even when the employee does not work the full number of hours scheduled.

Plaintiff further asserts that ECCA internal policies instruct general managers to assume a 40 hour workweek when scheduling various management personnel to work in their stores.  Plaintiff also points to the ECCA policy entitled “Work Schedules and Attendance,” which states that “[t]he normal workweek will consist of forty hours. The normal workday will consist of eight hours of work with an unpaid meal period.”  Plaintiff argues that these policies, as well as the documented deductions in his biweekly paychecks demonstrate that defendants expected plaintiff to work a minimum of 40 hours and, in the event he failed to do so and did not claim leave or other holiday to make up for the time, defendants expected not to pay him the full amount of his salary.

The court has reviewed the documentary evidence cited by plaintiff, as well as plaintiff’s statement, cited by defendants and finds that defendants have failed to demonstrate that no genuine dispute exists as to the applicability of the FWW method in this case. In light of the documentary evidence produced by plaintiff, the court finds that plaintiff has demonstrated that, pursuant to 29 C.F.R. 778.114(c), the FWW method is inapplicable to the case at bar. More specifically, the court finds that the check summary documents offered by plaintiff demonstrate that, on two occasions (9/25/2009 and 10/9/2009), plaintiff failed to work the required 80 hours in a designated two-week period and did not claim any holiday or vacation to make up for the shortage in his hours and, accordingly, eight hours worth of pay was deducted from his salary.  Thus, no sincere argument may be made by defendants that its intention was to pay plaintiff a set salary regardless of the hours he worked in a given week, as required for application of the FWW method. On the contrary, the evidence before the court demonstrates defendants’ expectation that plaintiff work a minimum of forty hours each week and that he would be compensated only for those hours he worked or for which he claimed holidays or vacation to which he was entitled. Defendants’ motion will be denied as to its request for application of the FWW method in this case and, accordingly, any overtime found by the jury to be owed to plaintiff shall be compensated at the rate of one and one-half times the amount of plaintiff’s regular hourly wage pursuant to 29 C.F.R. 541.207(a)(1).”

Click McCumber v. Eye Care Center of America, Inc. to read the entire Memorandum Ruling.

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February 5, 2011 · 10:49 am

M.D.Fla.: In “Salary Misclassification” Case, Time And A Half Damages Due, Because FWW Calculation Would Result In Sub-Minimum Wages For Overtime Hours In Many Weeks

West v. Verizon Services Corp.

This case was before the court on the Defendants’ motions for summary judgment on a variety of issues.  Defendants’ motions were denied.  As discussed here, the case of interest, because the court weighed in on the hot-button issue of how to calculate damages for an employee who was “salaried misclassified” by his or her employer.  Here, the court held that the damages for the plaintiff, if any, were to be calculated using the FLSA’s default time and a half methodology, largely because a calculation under the fluctuating workweek methodology (FWW) would result in sub-minimum wages for overtime hours in many weeks.

Pertinent to the issue discussed here, Plaintiffs pay was $400.00 per week in salary and, in some instances they could earn a $200.00 bonus in addition, if certain conditions were met.  The testimony in the record also indicated that the Plaintiffs worked varying hours each week, sometimes working in excess of 60 hours per week.

Holding that Plaintiffs’ damages, if any, were due to be calculated at the FLSA’s default time and a half rate, the court reasoned:

“D. Rate of Overtime Compensation

As noted above, Defendants argue that West is not entitled to any overtime compensation. However, in the alternative to Defendants’ aforementioned arguments, Defendants submit that if West is entitled to overtime compensation, she is not entitled to overtime compensation at the rate of time and one-half for hours worked over 40. Rather, Defendants contend that, if West is entitled to overtime compensation, her damages should be calculated using the “half-time” method. West disagrees, and seeks time and one-half for all overtime hours worked.

The FLSA mandates overtime payment for non-exempt employees for hours worked over 40 in a workweek at a rate of one and one-half times the regular rate at which the employee is paid. 29 U.S.C. § 207(a)(1). As correctly noted by Defendants, “calculation of the ‘regular rate’ is thus the starting point for determining the amount of overtime an employee is owed.” (Doc. # 214 at 12).

In Overnight Motor Transportation Company v. Missel, 316 U.S. 572, 580, 62 S.Ct. 1216, 86 L.Ed. 1682 (1942), the Court held that the employee’s “regular rate” may be determined by dividing the number of hours actually worked by the weekly wage. Id. As a result, a non-exempt employee who receives a weekly salary for all hours worked (even hours over 40) has, by definition, already been paid his “regular rate” for all hours worked in the workweek. Using this method, a salaried employee is only owed half-time for any hours worked in excess of 40 per week.

There can be no doubt that under certain circumstances, overtime payment using the half-time approach is entirely appropriate. “Virtually every court that has considered the question has upheld the remedial use of half-time in failed exemption cases.” Torres v. Bacardi Global Brands Promotions, Inc., 482 F.Supp.2d 1379, 1381, n. 2 (S.D.Fla.2007) (internal citation omitted). However, West asserts that compensation for overtime using the half-time approach, rather than the time and one-half approach, is improper here because Defendants have not satisfied the requirements of the “Fluctuating Work Week” Regulation.

Under 29 C.F.R. § 778.114, the fluctuating workweek method of calculating compensation is used only if the following requirements are met: (1) the employee’s hours fluctuate from week to week; (2) the employee receives a fixed weekly salary which remains the same regardless of the number of hours worked during the week; (3) the fixed amount is sufficient to provide compensation at a regular rate not less than the legal minimum wage; (4) the employer and the employee have a clear and mutual understanding that the employer will pay the employee a fixed salary regardless of the number of hours worked; and (5) the employee receives a fifty percent overtime premium in addition to the fixed weekly salary for all hours worked in excess of 40 during the week. See also Davis v. Friendly Express, Inc., 61 Fed. App’x 671 (11th Cir.2003); O’Brien v. Town of Agawam, 350 F.3d 279, 288 (1st Cir.2003); Griffin v. Wake County, 142 F.3d 712, 716 (4th Cir.1998).

It is evident that the arrangement between West and Defendants does not comport with the fluctuating workweek requirements above. Most importantly, if West worked 72 hours a week, her hourly rate using the fluctuating workweek method would be $5.56, which is less than the applicable minimum wage during the time of her employment ($6.79). As calculated by West, “any week in which West worked at least 59 hours, her hourly rate would fall below the guaranteed minimum wage.” (Doc. # 224).

In addition, West testified that her hours did not fluctuate in that she worked 72 hours per week, every week. There can be no understanding that an employee’s salary is intended to compensate for fluctuating hours-the hallmark of a fluctuating work week case-when the worker understands her hours to be set at 72 hours per week. Furthermore, West’s salary was not “fixed” because she received various bonus payments and commissions.

On the present record, the Court declines to determine that West’s overtime compensation, if any, should be limited to half-time, rather than time and one-half. In the instance that a jury determines that West is entitled to overtime compensation, West’s rate of overtime compensation will be time and one-half.”

Click West v. Verizon Services Corp. to read the entire order.

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August 29, 2010 · 9:09 am

11th Cir.: Despite Variable Premium/Bonuses That Fluctuated With Quantity/Quality of Work Performed, Bookkeeper/Accountants Were Paid on “Salary Basis”

Bell v. Callaway Partners, LLC

Plaintiffs were  bookkeepers/accountants classified by Defendant as exempt from the Fair Labor Standards Act’s (FLSA) overtime pay requirement.  This appeal concerned solely the issue of whether Plaintiff- who was paid a combination of a guaranteed weekly salary plus a variable bonus (at a straight-time rate rather than time and a half)- was paid on a “salary basis” for the purposes of satisfying the so-called “white collar” exemptions of the FLSA.  The Court ruled that she was and affirmed the ruling of the lower court, holding that variations in bonus or extra pay do not affect the underlying analysis of whether the first 40 hours are paid at on a “salary basis.”

Describing the pay structure at issue, the Court stated:

“Plaintiffs’ pay consisted of two distinct components. First, Plaintiffs received a guaranteed weekly salary of $1600 or more that did not depend on the quality or quantity of the work performed. This weekly salary was reduced by one-fifth of the weekly salary for every full day a Plaintiff took off from work for personal reasons during the normal workweek without substituting Paid Time Off (“PTO”). But, a Plaintiff could work fewer than eight hours during any given workday without any reduction in his or her weekly salary. Second, Plaintiffs were eligible to receive additional incentive compensation (a “bonus”) paid at a straight-time hourly rate based on the cumulative number of billable hours that Plaintiffs worked. Any bonus to be awarded was determined based on how many additional hours over forty a Plaintiff worked in a given week minus any “deficit” hours a Plaintiff had accumulated in past weeks. For example, if a Plaintiff worked seven and not eight hours on each regularly-scheduled workday in a given week, thus totaling 35 hours of work, he or she still earned the full predetermined weekly salary, but would not earn a bonus in a subsequent week until he or she made up the bonus-hour deficit of five hours and then worked more than 40 hours in a given week.”

Holding that this compensation methodology complied with the “salary basis” test, the Court reasoned:

“An employee is considered “paid on a salary basis” if “he regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C .F.R. § 541.602. Plaintiffs argue that they were not paid on a salary basis because the amount of their bonuses fluctuated based on the cumulative number of hours worked. But, as we have previously determined, “as long as there is a non-deductible minimum, additional compensation on top of the non-deductible salary is permissible.” Hogan v. Allstate Ins. Co., 361 F.3d 621, 625 (11th Cir.2004) (citation omitted). And, while additional compensation is permissible, the regulations do not require additional compensation, nor do they prescribe a set method for setting up a bonus system. 29 C.F.R. § 541.604(a) (“An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis…. Such additional compensation may be paid on any basis ….”).

After a review of the record, we agree with the district court’s well-reasoned analysis concluding that Callaway’s bonus system conformed to the requirements of the salary basis test. (R.374 at 13-24.) While Callaway’s incentive program may have been designed in a way that encouraged overtime work, as Plaintiffs argue it was, because it deducted for “deficit” hours, it nevertheless conformed to the requirements of the FLSA. Because there was a non-deductible minimum weekly salary, Callaway was free to structure any bonus program as it saw fit.

Plaintiffs also argue that Callaway violated the salary basis test when it deducted a full day’s pay for personal days missed during the workweek (Monday through Friday) but did not pay Plaintiffs for a “full day” for partial days worked on Saturday or Sunday. Again, we agree with the district court’s analysis concluding that such deductions were allowable under the provisions of 29 C.F.R. § 541.602(b)(1). (R.374 at 25-34.) Therefore, we hold that the district court did not err in finding Callaway’s pay policies to be in compliance with the FLSA.”

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