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W.D.Wash.: Notwithstanding Prior DOL Consent Judgment, Plaintiffs May Pursue Full Damages Under State Law, Because Appropriate Damages For Salary Misclassification Are Time And A Half Not FWW, And Damages Under Consent Judgment Represented Only Partial Relief
March 6, 2010 1:33 pm / Leave a comment
Monahan v. Emerald Performance Materials, LLC
This case was before the Court on the parties cross-motions for summary judgment. The issue was whether a prior consent judgment entered into by the DOL and the Defendant employer precluded this subsequent case, based solely on Washington state law, despite the fact that Plaintiffs were not on notice of the prior proceedings, did not participate in the prior proceedings, and Plaintiffs did not receive full damages due them under the prior consent judgment. Because the damages awarded previously–based on FWW, rather than time and a half–were insufficient, and Plaintiffs were not parties to the prior litigation, the Court found that they were not precluded from pursuing their full time and a half damages due them. Further, the Court held that although the consent judgment barred a subsequent FLSA action, it did not preempt or preclude a claim for the additional damages due, solely under the relevant Washington state law.
Discussing the relevant procedural background, the Court stated:
“Immediately after discovering the potential violation in overtime pay for twelve-hour shift employees, Emerald, through counsel, reported the potential overtime pay violation to the U.S. Department of Labor, Wage and Hour Division, in Ohio (where Emerald is headquartered). After investigation, the Department of Labor determined that a violation occurred. On May 27, 2008, the Department filed a complaint in U.S. District Court for the Northern District of Ohio seeking to enjoin Emerald from continuing to violate the Fair Labor Standards Act (“FLSA”) and from continuing to withhold overtime compensation due to eighty-eight (88) employees, including all ten plaintiffs in this matter, who worked twelve-hour scheduled shifts and were paid according to Section 17A of the CBA.
The Department of Labor reviewed Emerald’s time and payroll records to calculate the amount of overtime back wages due. The Department of Labor determined that Article 17A of the CBA provided for payments of a fixed weekly amount of compensation regardless of the number of hours worked in any particular work week. The Department of Labor and Emerald entered into a Consent Judgment that enjoined Emerald from violating the overtime provisions of the FLSA and further required Emerald to tender payment to each of the subject employees in an individual amount listed in the Consent Judgment. The total amount tendered was $241,308. On July 29, 2008, U.S. District Judge Lioi entered the Consent Judgment, which set forth the specific amount of back wages due and owing to each employee.”
Plaintiffs and all other employees affected by the Secretary’s lawsuit in Ohio did not receive notice of the lawsuit, did not participate in any way in the lawsuit, did not have standing to appeal the Consent Judgment and did not have knowledge of the lawsuit until sometime after the defendant began distributing checks for unpaid overtime wages to them in August 2008.
Seventy-eight (78) employees listed in the Consent Judgment accepted the overtime back wages tendered to them. The ten plaintiffs in this case rejected the tendered amounts. On October 10, 2008, plaintiffs filed this lawsuit seeking overtime compensation under both the Federal FLSA and the Washington Minimum Wage Act (MWA). Plaintiffs are claiming back wages commencing in October 2005, before Emerald became the plaintiffs’ employer. Plaintiffs claim that Emerald has “successor liability.” Plaintiffs allege at paragraph 8 of their complaint that the Department of Labor in the Ohio action did not properly calculate the overtime back wages due.”
Discussing the proper time and a half calculation for overtime damages due in a salary misclassification case, the Court stated:
“Both the FLSA and MWA overtime provisions require an employer to pay time and one-half the regular rate of pay for all hours worked in a work week in excess of 40. 29 U.S.C. § 207 and RCW 49.46.130(1). Under the Washington Administrative Code, the term “regular rate” is determined “by dividing the amount of compensation received per week by the total number of hours worked during that week.” WAC 296-128-550. Similarly, under the United States Department of Labor Wage and Hour regulations at 29 C.F.R. § 778.109, an employee’s regular hourly rate of pay is determined “by dividing his total remuneration for employment (except statutory exclusions) in any work week by the total number of hours actually worked by him in that work week for which such compensation was paid .” Therefore, “regular rate of pay” is the same under both the FLSA and the MWA. Plaintiffs’ claims for overtime compensation under the FLSA and the Washington MWA are identical.
The Ohio District Court entered a judgment ordering payment of overtime using the flexible work week method. That judgment disposed of all claims under federal law but left open the question whether identical language under Washington law should be interpreted in the same manner as the Ohio Court interpreted federal law. There is no clear guidance from the Supreme Court on the subject and cases from different circuits seem to be split in cases with comparable or analogous circumstances. The Ninth Circuit has not weighed in on the issue.
First, the Court resolves the issue of preemption by determining that the CBA provision in question is clear and unambiguous. The parties intended to segment the wages earned by 12-hour shift employees using the flexible work week methodology. No further interpretation of the provision is necessary or possible. Because the interpretation of a CBA is not required, the state claims are not preempted in this case. Lividas v. Bradshaw, 512 U.S. 107, 125 (1994); Cramer v. Consolidated Freightways, Inc., 225 F.3d 683, 691 (9th Cir.2001). Defendant’s Motion for Summary Judgment on the issue of preemption [Dkt. # 39] is DENIED.
Next the Court must review the applicable regulation and the interpretive case law to determine whether Emerald is entitled to the employer-friendly flexible work week method of calculating overtime pay under Washington state law.
Plaintiffs allege that the overtime compensation due to plaintiffs in the Ohio Consent Judgment was incorrectly calculated. The Department of Labor calculated the regular rate of pay as set forth in 29 C.F.R. § 778.109, determining that the overtime compensation due to plaintiffs was one-half the regular rate times the number of hours in excess of 40 in a work week. The federal court in Ohio, in calculating back wages, used the “fluctuating work week” method set forth in 29 C.F.R. § 778.114. This regulation allows overtime to be calculated at only half of the regular rate, rather than time and one-half the regular rate of pay under the FLSA and the MWA:
An 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 work week whether few or many. Where the clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each work week, whatever the number, rather than for working 40 hours or some other fixed weekly work, such a salary arrangement is permitted by the act if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those work weeks in which the number of hours he works is greatest, and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay. Since the salary in such a situation is intended to compensate the employee as straight time rates for whatever hours are worked in the work week, the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the work week into the amount of the salary to obtain the applicable hourly rate a week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirements because such hours have already been compensated at the straight time regular rate, under the salary arrangement. 29 C.F.R. § 778.114(a) (emphasis added).
It is undisputed that using this method would not result in a hourly rate below the statutory minimum wage, nor is there any dispute that the number of hours plaintiffs worked each week fluctuated. The parties dispute whether the “clear mutual understanding” requirement extends only to being paid a fixed weekly salary regardless of the number of hours worked, or whether it also includes an understanding that plaintiffs will be paid overtime. Likewise, the parties disagree about whether the regulation also requires that the employee actually have been contemporaneously paid overtime.
There is no Ninth Circuit case law directly interpreting this aspect of the regulation. Plaintiffs direct the Court’s attention to the district court decision in Russell v. Wells Fargo & Co., 2009 WL 3861764 (N.D.Cal.2009), while the defendant cites to Tumulty v. FedEx Ground Package Sys., Inc., 2005 WL 1979104 (W.D.Wash). Plaintiffs argue that because Emerald was not paying its employees overtime contemporaneously throughout the period in dispute, it could have no clear understanding with the employees about overtime and the rate of overtime pay to be paid. Plaintiffs argue that because there is no “clear mutual understanding” and no contemporaneous overtime pay, the flexible work week methodology is not available to Emerald here.
Although the state law of Washington is identical to the FLSA regarding calculation of overtime using the flexible work week method, this Court must choose between two conflicting lines of federal decisions. One line of cases adopts a common sense approach that requires only that so long as the parties (employer and employee) reached a clear mutual understanding that while the employee’s hours may vary, his salary will not, then the calculation of overtime pay in a subsequent action brought under the wage laws would be half-pay for each hour over 40 in a week. These courts did not require that the employee know that he would receive overtime compensation or have actually received it contemporaneously. Clements v. Serco, Inc., 530 F.3d 1224 (10th Cir.2008); Valerio v. Putnam Assoc. Inc., 173 F.3d 35, 39-40 (1st Cir.1999); Blackman v. Brookshire Grocery Co., 835 F.2d 1135, 1138 (5th Cir.1988). If the Court follows this line of cases, the Ohio judgment will represent full compensation owed the plaintiffs and this case is at an end without further payment to plaintiffs, beyond that which has already been tendered.
The second line of cases looks more closely at the language of the applicable regulation and requires both a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each work week and contemporaneous payment of overtime as earned.
Here, because Emerald did not pay plaintiffs any more for overtime hours (hours worked in excess of 40 hours each week) the flexible work week method of payment for overtime hours at half the regular rate would give way to the predominant rate of compensation at time-and-a-half. This approach has been adopted by District Courts around the country: Russell v. Wells Fargo & Co., 2009 WL 3861764 (N.D.Cal.); Scott v. OTS Inc., 2006 WL 870369, *12 (N.D.Ga.); Hunter v. Sprint Corp., 453 F.Supp.2d 44, 58-62 (D.D.C.2006); Cowen v. Treetop Enters., 163 F.Supp.2d 930, 941 (M.D.Tenn.2001); Rainey v. Am. Forest & Paper Assoc., 26 F.Supp.2d 82, 99-102 (D.D.C.1998). The Court’s review of these cases, to include Overnight Motor Transport Co. v. Missel, 316 U.S. 572 (1942), and its consideration of the background and policy of the FLSA, convinces it that the flexible work week method cannot be used to calculate overtime retroactively (where it has not been paid contemporaneously with the overtime work) for the purposes of determining damages under Washington State law. The plaintiffs are entitled to pay at the rate of time-and-a-half for every hour of overtime time worked during the period of time covered by plaintiffs’ claims.
Washington courts recognize the “persuasive authority” of the federal Fair Labor Standards Act and regulations promulgated pursuant to it when construing MWA provisions that are similar to those of the FLSA. Inniss v. Tandy Corporation, 141 Wash.2d 517, 524-25, 7 P.3d 807 (2000). Both the FLSA and the MWA authorize the use of the Flexible work week methodology. 29 C.F.R. § 778.114; WAC 296-128-550.
The Washington Supreme Court has expressly found that 29 C.F.R. § 778.114 provides guidance when determining the applicability of the flexible work week method under the MWA. Inniss, 141 Wash.2d at 524-25.
29 C.F.R. § 778.114(a) sets out five prerequisites for application of the flexible work week method. Griffin v. Wake County, 142 F.3d 712, 715 (4th Cir.1998). The plain terms of 29 C.F.R. § 778.114(c) provide that unless “all the legal prerequisites” for applying the flexible work week method are present, an employer cannot avail itself of the flexible work week method for calculating overtime wages. In such cases where the flexible work week method cannot apply, the “statutory” method of multiplying the employee’s regular hourly rate by 1.5 and then by the number of hours worked over 40 in each work week is the applicable overtime pay computation method.
One of the prerequisites under 29 C.F.R. § 778.114(a) for applying the flexible work week method is payment of the mandatory 50% overtime premium contemporaneously with payment of the employee’s regular straight time pay. Russell v. Wells Fargo & Co., 2009 Westlaw 3861764, at *3 (N.D.Cal.2009). Defendant paid plaintiffs no wages at all for the hours for which plaintiffs seek recovery of unpaid overtime wages. Defendant therefore did not satisfy the contemporaneous overtime pay prerequisite of 29 C.F.R. § 778.114(a).
Another prerequisite for the flexible work week method of overtime calculation to apply is that the employer and employee must have reached a “clear mutual understanding” at the outset of their employment relationship that the employee’s fixed salary would compensate the employee for all hours worked. Griffin, 142 F.3d at 715. This understanding must include an understanding that the employee will be compensated for his overtime work at a rate of 50% of his regular hourly rate. Russell, 2009 Westlaw 3861764, at *5.
The parties lacked the clear mutual understanding required by 29 C.F.R. § 778.114(a) as evidenced by the fact that plaintiffs were paid nothing for the hours worked over 40 in various work weeks. If the employee receives no pay for overtime hours worked, the parties could not have understood that the employee was to be paid the requisite 50% overtime pay premium.
Defendant cannot avail itself of the flexible work week overtime pay computation method because two of the five prerequisites for application of that methodology were unsatisfied. The proper overtime pay computation method will be the statutory method described above.”
Thus, the Court concluded, since the Defendant was not entitled under the FLSA or Washington law to use the FWW to calculate the back-wages due for Plaintiffs, and the DOL consent judgment did not preempt the instant action, Plaintiffs were entitled to seek their proper time and a half damages under Washington law, notwithstanding the prior consent judgment.