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D.Ariz.: Where Construction Inspector Was Salaried Misclassified, Damages to Calculated Using Default Time and a Half Methodology, Not FWW
Blotzer v. L-3 Communications Corp.
This case was before the court on the parties’ cross motions for summary judgment. Both plaintiff and defendant contended that they were entitled to judgment as a matter of law regarding the exempt status of plaintiff, a construction inspector. The parties further disputed whether the fluctuating workweek methodology or the FLSA’s default time and a half methodology was applicable to calculate plaintiff’s damages, assuming he had been misclassified. After finding plaintiff to be non-exempt, the court held that plaintiff’s damages had to be calculated using the FLSA’s default methodology, because: (1) it is contrary to the rationale of the FLSA to apply the FWW method in misclassification cases; (2) application of the FWW in misclassification cases runs counter to the intent of the FLSA; and (3) even if the FWW method were applied, the defendant had failed to prove the elements of the FWW method were present in the case.
The court explained:
The FWW method set forth in 29 C.F.R. § 778.114 is not intended to apply retroactively in a misclassification case. See Urnikis–Negro, 616 F.3d at 666 (stating that 29 C.F.R. § 778.114 is not a remedial measure that specifies how damages are to be calculated when a court finds that an employer has breached its statutory obligations). It was drafted by the Department of Labor as “forward-looking” and only describes how employers and employees should structure an agreement for future compensation. Id. at 677. Moreover, because the regulation was adopted without formal rule-making, it is entitled to less deference. See Hasan v. GPM Investments, LLC, 2012 WL 3725693, *2 (D.Conn.2012) (citing Christensen v. Harris Co., 529 U.S. 576, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000)). The Court concludes that the FWW should not be applied in the present case because: (1) it is contrary to the rationale of the FLSA to apply the FWW method in misclassification cases; (2) application of the FWW in misclassification cases runs counter to the intent of the FLSA; and (3) even if the FWW method were applied, Defendant has failed to prove the elements of the FWW method are present in this case.
Application of the FWW method in a misclassification case is contrary to FLSA’s rationale. The FWW method requires proof of a “clear mutual understanding” that: (1) the fixed salary is compensation for the hours worked each work week, whatever their number; and (2) overtime pay will be provided contemporaneously such that it fluctuates depending on hours worked per week. See 29 C.F.R. §§ 778.114(a) & (c). In a misclassification case, at least one of the parties initiated employment with the belief that the employee was exempt from the FLSA, paid on a salary basis, and therefore not entitled to overtime. When an employee is erroneously classified as exempt and illegally being deprived of overtime pay, neither the fourth nor fifth legal prerequisites for use of the FWW method is satisfied. The parties do not have a “clear, mutual understanding” that a fixed salary will be paid for “fluctuating hours, apart from overtime premiums” because the parties have not contemplated overtime pay. In addition, because the employees were erroneously classified as exempt, overtime compensation was not provided contemporaneously. See Russell v. Wells Fargo and Co., 672 F.Supp.2d 1008 (N.D.Cal.2009); Hasan, 2012 WL 3725693 at * 4 (collecting cases which hold that, in a misclassification case, the parties never agreed to an essential term of a fluctuating work week arrangement, ie. that overtime would be paid at different rates depending on the number of hours worked per week). As the court stated in Ransom v. M. Patel Enters., Inc., 825 F.Supp.2d 799, 810 n. 11 (W.D.Tex.2011):
The significance of the employee’s lack of knowledge of nonexempt status cannot be overstated. The fundamental assumption underpinning the FWW is that it is fair to use it to calculate overtime pay because the employee consented to the payment scheme. But in the context of an FLSA misclassification suit when consent is inferred from the employee’s conduct, that conduct will always, by definition, have been based on the false assumption that he was not entitled to overtime compensation. The job will have been advertised as a salaried position. The employee, if he raised the issue, will have been told that the salary is all he will receive, regardless of how many hours he works. That is the very nature of a salaried, exempt position. When it turns out that the employer is wrong, and it is learned that the FLSA required the employer to pay the employee an overtime premium, the notion that the employees conduct before he knew this is evidence that the employee somehow consented to a calculation method for the overtime pay that no one even knew was due, is perverse. If the FWW requires consent in some fashion, the employee’s actions before he knew he was due overtime pay just cannot logically be the basis of that consent.
Furthermore, 29 C.F.R. § 778.114(c) provides that the FWW method cannot be used “where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for non-overtime hours.” In a misclassification case, because employees have not been paid overtime premiums, they are compensated for those hours worked more than forty at a rate not greater than the regular rate. Russell, 672 F.Supp.2d at 1014. Thus, attempting to retroactively apply the FWW method to a miscalculation case is akin to “the old ‘square peg in a round hole’ problem [because it requires] apply[ing] § 778.114 to a situation it was not intended to address.” EZPawn, 633 F.Supp.2d at 402.
“In making its decision here, the Court is ‘mindful of the directive that the [FLSA] is to be liberally construed to apply to the furthest reaches consistent with Congressional direction.’ ” Russell, 672 F.Supp.2d at 1014 (citing Klem, 208 F.3d at 1089). Application of the FWW in a misclassification case gives rise to a “perverse incentive” for employers, because the employee’s hourly “regular rate” decreases with each additional hour worked. In fact, the difference between the FWW method and the traditional time-anda-half method can result in an employee being paid seventy-one percent less for overtime over a given year, and under the FWW method, the effective overtime hourly rate of an employee working sixty-one hours or more is less than the non-overtime hourly rate of an employee who worked no more than forty hours per week. See Russell, 672 F.Supp.2d at 1012;
see also Hasan, 2012 WL 3725693 at *2 (calculating the pay difference for a misclassified employer under both methods). This result is contrary to the FLSA’s purpose: encouraging employers to spread employment among more workers, rather than employing fewer workers who are then required to work longer hours. See Robertson v. Alaska Juneau Gold Min. Co. ., 157 F.2d 876, 879 (9th Cir.1946)
The court further explained that even if it had reached the opposite conclusion of law (i.e. that the FWW could be applicable in some misclassification cases), the facts of the case would still preclude its application here:
Finally, even if the Court concluded that the FWW method does apply in some miscalculation cases, it would not apply in the present case because Defendant has failed to demonstrate a “fluctuating” work week or a “clear mutual understanding” of straight pay and a contemporaneous overtime arrangement as required by the regulation. The FWW was intended to apply to “fluctuating” work schedules, ie. schedules in which an employee endures long hours some weeks but enjoys the benefit of short hours in other weeks, all at the same rate of pay. See Hasan, 2012 WL 3725693 at *4. In the present case, it is undisputed that Plaintiffs consistently worked more than 40 hours per week. Thus, Plaintiffs’ “variance, between weeks with a moderate amount of overtime hours, and weeks where a majority of hours worked exceeded the 40 hour threshold, is not the same as the up and down fluctuation contemplated by the DOL and by the Court in Missel.” Id. In addition, by its plain terms, the FWW method applies only when the employee clearly understands that he will receive straight-time pay for all hours worked and extra compensation of at least half his regular rate of pay, in addition to the fixed salary, for overtime hours during the weeks when he works overtime. Hunter v. Sprint Corp., 453 F.Supp.2d 44, 59 (D.D.C.2006); Russell, 672 F.Supp.2d at 1013–14. No such clear, mutual understanding is present in this case. Defendant contends that Plaintiffs agreed to work for a set salary regardless of whether they worked “35 hours or 55 hours.” (Doc. 74, pg.13.) Defendant misquotes Plaintiffs’ testimony regarding the number of hours they anticipated working. Although Defendant describes the Plaintiffs’ testimony regarding their salary as their “sole source of income regardless of whether they worked 35 or 55 hours,” neither Plaintiff testified to any expectation of ever working less than 40 hours. (Doc. 71, pg. 10; Doc. 71–1, pgs. 35 & 52.) The undisputed evidence is that Plaintiffs expected to work 50 hours a week. Furthermore, even if Defendant could prove that Plaintiffs and Defendant had a clear, mutual understanding that Plaintiffs would work 50 hours a week without overtime pay, such an arrangement amounts to an agreement “not to receive their FLSA entitlement to overtime pay. This would be illegal. Employees cannot agree to waive their right to overtime pay.” Russell, 672 F.Supp.2d at 1014. The parties’ lack of “mutual understanding” regarding Plaintiffs’ salary is further supported by the fact that Plaintiffs, upon realizing that they were being required to work far more than 50 hours per week, complained about their hours and were eventually paid some overtime.
In sum, the Court agrees with its sister district court in Northern California which held that “If Defendants’ position were adopted, an employer, after being held liable for FLSA violations, would be able unilaterally to choose to pay employees their unpaid overtime premium under the more employer-friendly of the two calculation methods. Given the remedial purpose of the FLSA, it would be incongruous to allow employees, who have been illegally deprived of overtime pay, to be shortchanged further by an employer who opts for the discount accommodation intended for a different situation.” Russell, 672 F.Supp.2d at 1014. Accordingly, the Court concludes that the FWW method to damages calculation is not applicable in the instant case.
Click Blotzer v. L-3 Communications Corp. to read the entire Order.
Hasan v. GPM Investments, LLC
Yet another court has weighed in on the FWW (“half-time”) versus time and a half issue in so-called “salary misclassification” cases, and this time it’s a victory for employees. This case was before the court on the plaintiffs’ motion in limine regarding the methodology for calculating damages, in the event the plaintiffs prevailed on their misclassification claims at trial. Addressing all of the arguments typically proffered by plaintiff-employees and defendant-employers, the court held that the fluctuating work week methodology was inapplicable because the defendant failed to meet several of the prerequisites for its use. Thus, the court held that any damages had to be calculated using the FLSA’s default time and a half methodology.
After a lengthy discussion of the Missel case, a history of the FWW and recent salary misclassification decisions, the court discussed why the FWW could not apply to a salary misclassification case. Framing the issue, the court explained:
Plaintiffs contend that the fluctuating work week method of compensation is never appropriate in a case where an employer has misclassified an employee as exempt from the FLSA’s protections. They argue that misclassification cases only present one issue—how to reconstruct what the rate of pay would have been absent a violation. Defendants counter that in a misclassification case “a fixed salary is always meant to compensate for all hours worked,” and under Missel, a fluctuating work week calculation “provides the precise remedy.” Def. Opp. at 12. In other words, a misclassification case does not require that the court recreate a rate, but, instead, that it convert a unusual payment method into an hourly rate. Plaintiffs have the better argument and one need look no further than the DOL’s guidance to understand why.
Initially, the court noted that where an employer has classified an employee as exempt, logically there is never a mutual understanding that overtime will be paid at varying rates, because the parties agreement is that there will be no overtime at all.
When an employer misclassifies an employee, the resultant employment contract will never fulfill any of the requirements of section 778.114. First, parties who believe that an employee merits no overtime payment cannot simultaneously believe that any overtime will be paid at varying rates. Put another way, in a misclassification case, the parties never agreed to an essential term of a fluctuating work week arrangement—that overtime would be paid at different rates depending on the number of hours worked per week. See Perkins v. Southern New England Telephone Co., 2011 WL 4460248 at *3 (D.Conn. Sept. 27, 2011), Russell, 672 F.Supp.2d at 1013–14,Rainey v. Am. Forest & Paper Assoc., 26 F.2d 82, 100–02 (D.D.C.1998). To assume otherwise converts every salaried position into a position compensated at a fluctuating rate.
Next, the court noted the lack of contemporaneous overtime payment at the time the work in question was performed, pursuant to the parties agreement that there would be no overtime:
Second, misclassified employees will never have received any kind of bonus or premium for overtime. Indeed, parties will have explicitly agreed, as they did in this case, that employees will not earn extra money for long hours. See Def. Opp. Ex. A Job Description (listing the position as explicitly “exempt” from overtime compensation). At best, an employer could argue that the flat salary had an overtime bump embedded within it, that it was high enough so that employees remained well compensated for the hardship of working more than 40 hours per week. But this argument fails for two reasons: First, such an agreement would be illegal. An employee would have to waive her statutory right to extra compensation for overtime. Barrentine v. Arkansas–Best Freight Sys., 450 U.S. 728, 740 (1981) (noting that “FLSA rights cannot be abridged by contract” because this would “nullify the purposes of the statute”). Second, Missel explicitly rejected such an argument. The court reasoned that the contract at issue did not comply with the FLSA because “it [did not include a] provision for additional pay in the event the hours worked required minimum compensation greater than the fixed wage.” Missel, 316 U.S. at 581.
Further, here the court noted that while the plaintiffs’ hours fluctuated, the never worked fewer than 40 hours. Thus, the court concluded this was not a situation where short weeks were balanced against longer weeks and the plaintiffs were nonetheless receiving the type of steady income envisioned by the FWW as the supposed benefit for employees:
In this case, GPM also fails to meet a third criterion enunciated in the DOL’s guidance—that an employee’s hours actually fluctuate. After it lays out the requirements for a contract for a fluctuating rate, the rule warns that “typically, such salaries are paid to employees who do not customarily work a regular schedule of hours” and are “in amounts agreed on by the parties as adequate straight-time compensation for long work weeks as well as short ones .” 29 C.F.R. § 778.114(c). For a fluctuating work week arrangement to make sense to both parties, employees should offset their relative loss from a grueling work week far above forty hours with the benefit of full pay for weeks that clock-in at less than forty hours. Otherwise, employees have not bargained for anything but decreasing marginal pay as they work longer and longer hours at work. This is what the Court divined in Missel; a rate clerk would sometimes work long hours when shipments flooded in, and sometimes not at all when business dried up. Here, plaintiffs never had a short week; GPM’s job description stated that store managers were expected to work a minimum of 52 hours per week. See Def. Opp. Ex. A, Job Description. To the extent their hours fluctuated, it was because they sometimes worked almost 100 hours per week. See Plaintiff’s Motion in Limine, Ex. A, Timesheets. This variance, between weeks with a moderate amount of overtime hours, and weeks where a majority of hours worked exceeded the 40 hour threshold, is not the same as the up and down fluctuation contemplated by the DOL and by the Court in Missel.
In light of the defendant’s failure to meet any of the prerequisites for the use of the FWW, the court concluded that any damages due would be calculated using the FLSA’s default time and a half methodology. Thus, it granted the plaintiffs’ motion in limine.
Click Hasan v. GPM Investments, LLC to read the entire Ruling and Order on Motion in Limine to Preclude Use of the Fluctuating Work Week.
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.
DOL Publishes New FLSA Rules, Rejecting Pro-Employer Changes to Fluctuating Workweek and Comp Time, Clarifying Tip Credit Rules
On April 5, the Department of Labor (DOL) published its updates to its interpretative regulations regarding the Fair Labor Standards Act (FLSA) in the Federal Register. to go into effect 30 days later. The Updating Regulations, revise out of date CFR regulations. Specifically, these revisions conform the regulations to FLSA amendments passed in 1974, 1977, 1996, 1997, 1998, 1999, 2000, and 2007, and Portal Act amendments passed in 1996.
As noted by several commentators, the final regulations are noteworthy for what was not included as much as for what was. Below is a brief description of the most significant changes and those changes originally proposed, that were not adopted:
Fluctuating Workweek Under 29 C.F.R. §778.114
The proposed regulations issued by DOL in 2008 under the Bush administration (73 Fed. Reg. 43654) would have amended regulations on the “fluctuating workweek” method of calculating overtime pay for nonexempt employees who have agreed to received pay in the form of fixed weekly payments rather than in the form of an hourly wage. The proposed regulations would have amended 29 C.F.R. §778.114 to permit payments of non-overtime bonuses and incentives (such as shift differentials) “without invalidating the guaranteed salary criterion required for the half-time overtime pay computation.” The DOL left out this proposed change from the final rules however, saying it had “concluded that unless such payments are overtime premiums, they are incompatible with the fluctuating workweek method of computing overtime.” Explaining the decision not to amend the FWW reg, the DOL noted that “several commenters … noted that the proposal would permit employers to reduce employees’ fixed weekly salaries and shift the bulk of the employees’ wages to bonus and premium pay” contra to the FLSA’s intent. The DOL’s decision to decline the proposed amendment is consistent with virtually all case law on this issue, as discussed here and here.
The DOL has also decided to revise the proposed regulations’ interpretation of Congress’ 1974 amendment, section 3(m) of the FLSA, to require advance notice to tipped employees of information about the tip credit the employer is permitted to take based on its employees’ tips. The final rule combines existing regulatory provisions to assure such employees are notified of the employer’s use of the tip credit, and how the employer calculates it. This regulation too is consistent with case law on the subject, requiring advanced notice of the tip credit.
The final rules also do not include a proposed change that would have allowed public-sector employers to grant employees compensatory time requested “within a reasonable period” of the request, instead of on the specific dates requested. Instead, the final rule will leave the regulations unchanged, “consistent with [DOL’s] longstanding position that employees are entitled to use compensatory time on the date requested absent undue disruption to the agency.”
The new CFR regulations go into effect on May 5, 2011.
USSC: Plaintiff’s Petition for Certiorari Denied Regarding Calculation of Damages for “Salaried Misclassified” Workers
Urnikis-Negro v. American Family Property
In a case where the United States Supreme Court could have decided the oft-raised issue of how to calculate an employee’s damages, following a finding that they were “salaried misclassified,” the Supreme Court has denied Plaintiff’s Petition for Cert, and therefore the issue remains largely unresolved. In a decision discussed here, the Seventh Circuit held that the proper calculation of damages in such a situation was the the “fluctuating workweek” methodology, rather than time and a half. The Fourth Circuit held that only “half-time” damages are due when an employee is salaried misclassified recently too. This decision was widely watched by Wage and Hour practitioners, because of the impact the calculation issue has on damages for such employees who are misclassified. Under the fluctuating workweek calculation, an employee who was salaried and misclassified receives less than one third the damages he or she would receive if the award were made at time and a half.
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.
7th Cir.: FWW Is Appropriate Method To Determine Unpaid Overtime Where Plaintiff Was Salaried Misclassified
Urnikis-Negro v. American Family Property Services
Although plaintiff Brenda Urnikis-Negro prevailed in her suit for overtime pay, she contended on appeal that the district court improperly calculated the amount of pay she was owed. After a bench trial, the district court found that the Defendants, violated the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. §§ 201, et seq. (“FLSA”), when they treated Urnikis-Negro as an administrative employee who was exempt from the overtime provisions of the statute. Urnikis-Negro v. Am. Family Prop. Servs., Inc., No. 06 C 6014, 2008 WL 5539823, at *5-*9 (N.D.Ill. Jul. 21, 2008); see 29 U.S.C. §§ 207, 216(b). As a result of Defendants’ misclassification, Urnikis-Negro was never paid anything above her fixed salary for her overtime hours.
However, in calculating Urnikis-Negro’s regular rate of pay and thence the overtime to which she was entitled, the court used the fluctuating workweek (“FWW”) method set forth in 29 C.F.R. § 778.114(a), an interpretive rule promulgated by the Department of Labor. 2008 WL 5539823, at *11-*12.
Recognizing that section 778.114(a) itself does not provide the authority for applying the FWW method in a misclassification case, it applied the FWW anyway. In a troubling opinion, the Court specifically stated that the FWW “is not a remedial measure that specifies how damages are to be calculated when a court finds that an employer has breached its statutory obligations.”
Nonetheless, the Court held that irrespective of the rule, it was appropriate for the district court to apply the FWW method in this case, citing the authority found in the Supreme Court’s decision in Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 62 S.Ct. 1216 (1942), superseded on other grounds by statute as stated in Trans World Air Lines, Inc. v. Thurston, 469 U.S. 111, 128 n. 22, 105 S.Ct. 613, 625 n. 22 (1985), “which approved this very method of calculating of an employee’s regular rate of pay and corresponding overtime premium. We therefore affirm the district court’s judgment.”
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D.N.J.: Defendants’ Purported Use Of Fluctuating Workweek (FWW) Violated FLSA, Because There Was No “Fixed” Amount As Straight Time Pay; Docking Of Pay, Although Infrequent Violated FLSA; Time And A Half Damages Due
Brumley v. Camin Cargo Control, Inc.
This matter was before the Court on the cross-motions for summary judgment filed by Defendant and Plaintiffs, on a variety of issues arising from Defendant’s purported use of the Fluctuating Workweek (FWW), to calculate Plaintiffs’ overtime compensation. As discussed partially herein, Defendant’s motion was denied in its entirety and Plaintiffs’ motion was granted in part and denied in part. Significantly, the Court held that Defendant’s purported use of the FWW violated the FLSA for a variety of reasons, and under such circumstances, Plaintiffs’ damages were to be calculated using the FLSA’s default time and a half method not the FWW, as Defendant’s had proposed.
After outlining the applicable law, the Court first discussed the Defendant’s infrequent docking of Plaintiffs’ pay, ruling that same necessarily resulted in a failure to comply with the stringent requirements of 29 C.F.R. 778.114, and thus Defendant was not entitled to summary judgment.
“With respect to decreases in the fixed salary, regulation calls for a fixed salary regardless of the length of the workweek. 29 C.F .R. § 778.114 (“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 workweek, whether few or many.”). An employer may deduct from an FWW employee’s vacation time bank for workdays missed, but may not deduct from the fixed salary for time an FWW employee misses from work. DOL Opinion Letter, 1999 WL 1002399 (May 10, 1999). Similarly, the DOL stated that “it is the longstanding position of the Wage and Hour Division that an employer utilizing the fluctuating workweek method of payment may not make deductions from an employee’s salary for absences occasioned by the employee[,]” unless the deductions are of a nonroutine disciplinary nature “for willful absences or tardiness or for infractions of major work rules.” DOL Opinion Letter, 2006 WL 1488849 (May 12, 2006).
Several of the cases cited by the parties are not on point with respect to the issue of salary decreases under the FWW. Although Aiken v. County of Hampton discusses the FWW, its ruling on the fixed salary requirement relates to deductions from accrued vacation banks and the effect of legal holidays that are not at issue in the instant matter. 977 F.Supp. 390, 395-97 (D.S.C.1997). Lance v. Scotts Co. addresses the effect of commissions on FWW calculations, something governed by 29 C.F.R. § 778.118, a regulation not at issue here. No. 04-5270, 2005 WL 1785315, at *4-7 (N.D.Ill. Jul. 21, 2005) (Keys, M.J.). Rau v. Darling’s Drug Stores, Inc. addresses not the existence of a fixed weekly payment, but the correct calculation of damages for a non-exempt, salaried employee. 388 F.Supp. 877, 883-86 (E.D.Pa.1977). In Spring v. Washington Glass Co. the parties stipulated to the use of the FWW to calculate overtime pay damages, so the issue of whether it applied was never contested before that court. 153 F.Supp. 312, 318-19 (W.D.Pa.1957).
Defendant does, however, cite Cash v. Conn Appliances, Inc., 2 F. Supp 2d 884, 906 (E.D.Tx.1997), which supports the proposition that it did not violate the FWW when it docked inspectors for missing work. Cash read the regulation as permitting an employer to dock pay when an employee failed to show up for scheduled work. 2. F. Supp 2d at 906 (“The docking policy only called for a loss of pay for absences during scheduled time; it in no way sanctioned reducing pay because of a failure to assign a coefficient employee forty hours of work for a week.”). Cash also holds that occasional violations of FWW requirements do not result in a broad invalidation of the method when calculating damages. Id. This Court fails to find the Cash interpretation of the regulation persuasive as to docking of employees’ pay. First, the regulation itself specifies that the fixed salary must be paid regardless of hours worked without reference to which party is responsible for the shortfall. 29 C.F.R. § 778.114 (“The ‘fluctuating workweek’ method of overtime payment may not be used unless … the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked.”). Second, the DOL’s interpretation of the regulation denies employers the ability to routinely dock the fixed FWW salary. DOL Opinion Letter, 2006 WL 1488849 (May 12, 2006); DOL Opinion Letter, 1999 WL 1002399 (May 10, 1999).
Here, Defendant concedes that on at least one occasion, it docked a Plaintiff inspector’s fixed salary for an impermissible reason. (Def. Reply Br. at 6.) Although it characterizes such an event as statistically insignificant, such an argument goes to weight. This Court, therefore, denies summary judgment to Defendants on the issue of whether they complied with the FWW method of paying the Plaintiff inspectors.”
Next, the Court held that the addition of certain premium pay into Plaintiffs’ straight time pay each week resulted in non-fixed straight time pay, and thus violated the requirements for use of the FWW, in lieu of the default time and a half methodology required by the FLSA.
“The relevant language in the regulation regarding additional payments to FWW employees reads as follows: “[w]here all the legal prerequisites for use of the ‘fluctuating workweek’ method of overtime payment are present, the Act, in requiring that ‘not less than’ the prescribed premium of 50 percent for overtime hours worked be paid, does not prohibit paying more.” 29 C.F.R. § 778.114(c). Department of Labor (“DOL”) Opinion Letters interpreting the FWW regulation have weighed in on the issue of additional payments. The DOL has stated that an employer can make additional payments to an FWW employee for a holiday occurring in a given week. DOL Opinion Letter, 1999 WL 1002399 (May 10, 1999). An employer may also pay employees more than the minimum calculated rate under the FWW method for overtime. DOL Opinion Letter, 2002 WL 32255314 (Oct. 31, 2002).
Courts interpreting the FWW, however, have emphasized that additional payments can result in the finding that there is no fixed salary. Although the court in O’Brien v. Town of Agawam found that variations in the weekly pay of law enforcement officers for other reasons prevented the finding of a fixed FWW salary, it used this reasoning with regard to incentive payments:
The officers’ compensation varies from week to week even without reference to the number of hours worked. Any officer required to work a nighttime shift receives money-expressly termed “additional compensation” under the CBA-in the form of a $10 shift-differential payment added to his check for the week. The Supreme Court has specifically held that such shift differentials, when paid, are part of the worker’s regular rate of pay. Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 468-69 (1948). So while the shift differential itself may be small, it requires the larger conclusion that most officers do not receive a “fixed amount” for their straight-time labor each week. 350 F.3d 279, 288-89 (1st Cir.2003). See also Dooley v. Liberty Mut. Ins. Co., 369 F. Supp 2d 81, 86 (D.Mass.2005) (following O’Brien ). Similarly, Ayers v. SGS Control Servs., Inc. found that employees performing similar work to the inspector Plaintiffs in this case did not receive a fixed salary because they received lump-sum “day-off pay” and “sea pay” for working on their days off and on offshore vessels. No. 03-9077, 2007 WL 646326, at *8-10 (S.D.N.Y. Feb. 27, 2007). Finally, a case in this District, Adeva v. Intertek USA, Inc., stands for the proposition that shift premiums preclude application of the FWW. No. 09-1096, 2010 WL 97991, at *2-3 (D.N.J. Jan. 11, 2010) (Chesler, J.). “The record demonstrates that Plaintiffs’ compensation for non-overtime hours varied, depending upon earned offshore pay, holiday pay or day-off pay. The Court is convinced that due to such payments, Plaintiffs cannot receive the fixed salary required to apply the FWW.” Id.
Some of the cases brought forth by Defendant are inapposite. See, e.g., Clements v. Serco, Inc., 530 F.3d 1224, 1230-31 (10th Cir.2008) (commissions under the FWW); Lance, No. 04-5270, 2005 WL 1785315, at *4-7 (same). Two, however, are potentially instructive. In Cash, discussed supra, the court found that the defendant had failed to incorporate bonuses into its calculation of the regular rate, thereby decreasing plaintiffs’ overtime, but that such failure was considered insufficient to deny the defendant the benefit of the FWW. 2 F. Supp 2d at 893 n. 17, 896, 908. The court in Aiken found that an employer’s payment of holiday pay to a law enforcement officer who worked on a holiday did not result in the absence of a fixed salary. 977 F.Supp. at 399-400. The reasoning used in Aiken was that the employee would have received the holiday pay anyway, regardless of whether or not the employee worked the holiday, and that the holiday pay simply operated as a permissible increase in overtime pay under the circumstances. Id.
This Court finds that Cash and Aiken can be distinguished on their facts. Cash dealt with employees of an appliance store; Aiken dealt with law enforcement personnel. The only cases brought to this Court’s attention that deal with inspectors similar to Plaintiffs are Ayers and Aveda, and this Court finds their reasoning persuasive as to the applicability of the FWW to this case, not only because of the factual similarity, but because they give meaning to the plain language of 29 C.F.R. § 778.114. Plaintiffs were paid day off pay and holiday pay in addition to their regular salary and overtime. (Def. R. 56.1 Statement ¶¶ 15, 39, 41.) For example, Camin concedes that the use of day off and holiday pay resulted in the one inspector’s non-overtime earnings varying from $1,670 to $2,170 over two pay periods. (Def. Opp. R. 56.1 Statement § 23.) Such a scheme results in the absence of the “fixed salary” required by the regulation. 29 C.F.R. § 778.114(a); Aveda, No. 09-1096, 2010 WL 97991, at *2-3. This Court therefore grants Plaintiffs’ motion for summary judgment on the issue of whether Defendant’s policies and practices violated the FLSA due to the absence of the fixed salary requirement, and declines to reach the remaining arguments of the parties on the FWW. Adeva, No. 09-1096, 2010 WL 97991, at *3.”
Having held that the Defendant’s pay structure violated the FLSA, the Court next turned to the issue of how to calculate Plaintiffs’ damages, and held that the appropriate measure of damages was the FLSA’s default time and a half, not the FWW as Defendant had argued.
“Camin moves this Court to find that any liability it is subject to for violation of the FWW method of calculating pay be done so according to the FWW method. (Def. Br. at 24-27.) It maintains that such a measure of damages is permissible where the violation is computational as opposed to a violation of the clear understanding requirement or the minimum wage. (Id. at 24-25.) Plaintiffs argue that such a damages calculation is impermissible where a prerequisite to the FWW has not been met by the employer. (Pl. Opp. Br. at 24-26).
The primary case relied upon by Camin is Cash. The discussion of the FWW in Cash is quite broad, and describes the measure of damages available in FWW claims under many factual scenarios. 2 F. Supp 2d at 896-97. Cash noted that under the FWW, “[l]iability arises if the employer either miscomputes overtime pay or uses the fluctuating workweek method despite the absence of one or more of the criteria for doing so[,]” but differentiated between the types of violation in which damages were available. Id. at 896. The discussion of the available remedies breaks down into two broad categories: those where the measure of damages would be calculated under the FWW and those where overtime compensation would be adjusted so that it would be recalculated at the default FLSA rate of “time-and-a-half” overtime. Id. The following violations were permitted damages calculations under the FWW in Cash: “[e]mployer infrequently violated the minimum wage criterion and failed to cure its breaches fully[,]” “[e]mployer infrequently violated the minimum wage criterion and made no effort to cure its breaches[,]” and “[e]mployer made a computational mistake.” Id. at 896-97. Cash found that the following violations abrogated the FWW: “[e]mployer regularly violated the minimum wage criterion” and “[e]mployer violated the clear understanding criterion, full schedule criterion or both.” Id. at 896. The Cash court only considered failure of an employer to provide a fixed salary insofar as such a failure would lower overtime rates. Id. at 896.
Although this Court finds the discussion of damages in Cash useful, it is not entirely persuasive. This Court found supra that the fixed salary requirement of the FWW was violated. The regulation states that the fixed salary is a prerequisite to use of the FWW method. 29 C.F.R. § 778.114(c). The Cash court found that when other prerequisites of the FWW method were systematically violated, that the employer could not obtain the benefit of the FWW in calculating damages, but failed to reach the same conclusion concerning the fixed salary. Id. at 896. Instead, this Court finds the pre-trial motions opinion in Ayers v. SGS Control Servs., Inc. persuasive. No. 03-9078, 2007 WL 3171342, at *1-3 (S .D.N.Y. Oct. 9, 2007) (“Ayers II” ). In Ayers II, the Court found that as the defendant had violated the fixed salary requirement of the FWW method, it could not have damages calculated under the FWW method. No. 03-9078, 2007 WL 3171342, at *2. The Court held that the proper measure of damages was the default FSLA method: “time-and-a-half for all hours over 40.” Id. at *3. This Court finds that the default FSLA damages calculation, “time-and-a-half for all hours over 40,” will also apply to Plaintiffs who have suffered FWW violations in this case, and that summary judgment on this issue is denied to Defendant.”
Although not discussed here, the Court ruled that the factual issues precluded a finding regarding liquidated damages, and the length of the statute of limitations, at the summary judgment stage.
This case is one of several pending against Oil & Gas Inspection companies currently. To read more about a similar case, brought on behalf of OGC Inspectors at Inspectorate America, click here. You can also learn more about similar separate cases pending against Intertek Caleb Brett, Saybolt, Amspec and Inspectorate America by calling 1-888-OVERTIME.