Yesterday, a federal court in Connecticut had a very interesting ruling that addressed whether an employer — when faced with a suit for overtime by a group of convenience store employees (“clerks”, say the plaintiffs; “managers”, say the employer) — was allowed to use a fluctuating work week method if a jury found a violation of the FLSA. You can download the case, Hasan v. GPM Investments, LLC here.
For background, the court indicated that there were two questions that were typically presented in overtime cases like this (for those who like following the legal procedure, the court ruled on the issue in addressing a motion to preclude evidence from trial).
[First, s]ometimes employers classify employees as exempt, pay them salaries, and then later learn a particular role did not qualify as an exempt position and workers should have been paid an extra premium for overtime. Such employees, however, have never been paid an hourly wage, and courts are left to reconstruct what their ―regular rate of pay should have been. Second, the [FLSA] allows employers to pay staff in any manner they wish – for example, by salary, piece rate, or commission. 29 C.F.R. § 778.109. Congress crafted this permissive rule in order to accommodate the ―almost infinite variety of employment situations in a free market economy…. But when employers and employees argue over pay, courts must find ways to convert a less common compensation scheme into a standard hourly rate.
To answer the first question, the employer argued that the employees were paid for a fluctuating work week and that they were paid a fixed salary no matter how much time they spent on the job. It argued that this was merely an instance of converting an “unusual pay scheme into an hourly rate”. The court explained the different consequences in simple and stark terms if a factfinder was allowed to use a fluctuating work week to calculate damages.
By way of example, suppose an employee makes a weekly salary of 1200 dollars. A court is faced with the task of putting her in the position she might have been in absent a violation. If court divides her salary by the legal limit of 40 hours, it gets a regular rate of 30 dollars per hour. In a week when the employee worked 60 hours, she would receive time and half, or 45 dollars per hour, for that additional 20 hours of overtime. Thus, her total compensation should have totaled 2100 dollars (1200 dollars in base salary plus 900 dollars in overtime).
But what if a court is faced with a fluctuating work week, not a standard overtime violation? In that same 60-hour week, the worker’s 1200 dollar salary only compensated her at a rate of 20 dollars an hour, not 30. And, for the additional 20 hours she only wins an overtime supplement of 10 dollars – she has already gotten the base rate of 20 dollars for every hour she worked, including the extra hours, and was only deprived of the slight bump of an unpaid half- time premium. For that week, then, she would only receive two-thirds of the standard calculation or 1400 dollars (1200 dollars in base salary plus 200 dollars in an unpaid overtime premium).
The court rejected the employer’s use of a “fluctuating work week” because “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… To assume otherwise, coverts every salaried position into a position compensated at a fluctuating rate.”
The court noted that there were other deficiencies with the employer’s argument as well. “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.” Here, the evidence was that the employees never had a short week; indeed the job description stated that store managers “were expected to work a minimum of 52 hours per week”.
The case is another illustration of the perils of trying to rely on a fluctuating work week. While it can provide some benefit for employers, it must be done properly and must not be raised after the fact. Here, the court rejected an employer’s attempt to use it where it was seen as an after-the-fact justification for the failure to pay overtime.