It never seems to fail; I go on vacation and the Connecticut Supreme Court issues one of the few employment law decisions it issues every year during that week.

Fortunately for all of us, it concerns the fluctuating work week method of overtime computation which most employers in the state consciously either avoid or try not to understand.  (In very basic terms, the formula calculates a pay rate based on the number of hours an employee actually works in a particular weeks.)

I’ve previously discussed the “perils of trying to rely on a fluctuating work week.” As recently as 2012, I said that “while it can provide some benefit for employers, it must be done properly and must not be raised after the fact.”  And I noted way back in 2008 that employers have to jump through a variety of hoops to make sure they are compliant.

Add to this cautionary tale the latest Connecticut Supreme Court case of Williams v. General Nutrition Centers, Inc. 

The court held that overtime pay for retail employees who receive commission cannot be calculated using the federal fluctuating workweek formula.

And beyond that, the court raised two important principles.  

First, it said that Connecticut law does not prohibit the use of the fluctuating method in general. Thus, for most employers and most employees, the use of the fluctuating work week is definitely in play.

Second, and perhaps most critical here, the Court said that Connecticut Department of Labor regulations that govern overtime pay for retail employees do prohibit the use of the fluctuating method for those employees:

By setting forth its own formula for mercantile employers to use when computing overtime pay, one that requires them to divide pay by the usual hours worked to calculate the regular hourly rate, the wage [regulation] leaves no room for an alternative calculation method….The wage order’s command to use a divide by usual hours method therefore precludes use of the fluctuating method’s divide by actual hours method, except, of course, when an employee’s actual hours match his usual hours.

It should be noted as well that while the case concerned retail employees, the regulation at issue applies to all businesses in the “mercantile trade.”

For employers that rely on the fluctuating workweek method of calculating overtime in Connecticut, this case is a good reminder to revisit those practices now to make sure they comply with this new Connecticut case. Seeking the advice of your trusted counsel to look at your particular circumstances is critical given the court’s decision.

For those who enjoy reading about employment law (and, as readers of this blog, I’m sure that many of you qualify), there are a bunch of new articles on the subject.  While they may not break new ground, they offer some additional perspective on subjects that I’ve talked about quite a bit here.

Among them:

 

In prior posts, I’ve talked about the fluctuating work week and how it can be a useful tool for employers in limited circumstances. 

You might need a calculator

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.

My colleague, Mick Lavelle, has this post on a topic that few know about and even fewer understand: The Fluctuating Work Week.  For more background on the subject, I’ve talked about it in earlier posts here and here

Interpretation of the federal Fair Labor Standards Act is aided by hundreds of pages of regulations and U.S. Department of Labor advisory opinions. Connecticut’s wage-hour statutes, which cover the same ground, have far fewer interpretive aids.

But since states can regulate payment of wages, work hours and overtime practices more strictly than the federal law (which is why many states, including Connecticut, have a higher minimum wage), it is often a question as to whether Connecticut allows a wage payment practice that is clearly acceptable under the FLSA.

One such practice is the payment of overtime calculated on a “fluctuating work week”.

 The fluctuating work week method has been allowed under federal law since the 1940’s. A recent and well-reasoned Connecticut Superior Court decision, Roach v. Moran Foods, issued on March 16, 2012, now seems to establish that Connecticut employees can use the fluctuating work week and be in compliance with Connecticut law.  (You can view the complaint in the case here.)

The most important element in the fluctuating work week method is that an employee’s work hours genuinely fluctuate from week to week. The employee can be paid an equal amount each week (much like a salary), and his hourly rate is determined by dividing the pay amount by the number of hours actually worked in any week. The employee is paid overtime (that is, the extra half-time) for all hours in excess of 40.

Let’s say an employee is paid $800 per week. Under the usual method, this would be $20 an hour for a 40-hour week. It’s a good deal for the employee in weeks in which fewer than 40 hours are worked; in a 20-hour week, he gets the equivalent of $40 per hour. But in a 50-hour week, the regular rate is only $16 per hour. Since the $800 covers all hours at the regular rate, the employee is owed half-time, $8 per hour, for the extra 10 hours over 40, or $80. Without the fluctuating work week method, his overtime would be $300.

There is an important caveat – the regular rate under the fluctuating work week can’t be below the minimum wage. When I started drafting this post, I chose $400 as the weekly pay, but my 50-hour example resulted in a regular rate of $8, and the minimum wage is $8.25. So I inflated my example to $800 per week.

One other important caveat is that the fluctuating work week method must be established in a clear agreement between the employer and the employee. This should be in writing and signed by the employee.

The fluctuating work week may not be for every employers, but in the right situation, it can be a very useful way of paying employees while controlling costs.

Buried deep, deep, deep in Monday’s Federal Register was a quiet announcement that the U.S. Department of Labor was proposing some new wage/hour regulations interpreting the Fair Labor Standards Act of 1938 (download here).  In the "summary" section, the DOL states that the new regulations are needed because the regulations, in some cases, are out of date based on court decisions or subsequent legislation.  The DOL website doesn’t even have a press release on it as of Monday evening — only a link buried deep on a webpage here.

Comments are requested by September 11, 2008, so presumably the DOL is trying to implement these new regulations by the end of the current administration.  workers, courtesy library of congress

So what topics are covered in these proposed regulations? A few are noteworthy, while several others others are snoozeworthy.

For example, among the more noteworthy items are regulations addressing "compensatory time" and a "fluctuating workweek".  More snoozeworthy items including regulations regarding salesmen who sell boats and regulations regarding workers who work on ditches, canals and reservoirs, where 90% of the water used is for agricultural purposes.

Among the other topics covered

  • Updating regulations regarding "tipped" employees and the way the phrase "minimum wage" is used in various statutes;
  • Updating regulations defining who an "employee" is and excluding certain volunteers at private non-profit food banks;
  • Updating regulations regarding those employees engaged in "fire protection activities";
  • Updating regulations to clarify that stock options are excluded from the computation of the regular rate of pay;
  • Addressing regulations of "service advisers" working for auto dealers;

Upon first glance, most of the changes suggested by the Department of Labor just incorporate language from laws that have been passed in the last 20-30 years.  But for employers that have a particular interest in one of the above topics, special care should be used to review the language to see if it will have a particular impact on the business.

Lastly, these regulations are mere proposals; while it is somewhat likely that regulations like this will be implemented, they may undergo some significant changes in the final rule. Thus, employers should be cautious about relying on these rules until the final regulations are issued.

I’ll continue to review them and post any further comments or thoughts later in the week.

(H/T Fl. Employment Law Blog)

Photo courtesy of Library of Congress.