Tuesday, June 22, 2010

The "Fluctuating Workweek" Method of Calculating Overtime Under the FLSA: The Clear Mutual Understanding Requirement

a.       The Existence of a Clear Mutual Understanding Regarding a Fixed Salary
The Department of Labor issued an opinion letter stating that employees can indicate their acceptance of the fluctuating workweek method of payment by continuing to work fluctuating workweeks and accepting payment of a fixed salary regardless of how many hours they worked.  DOL Wage & Hour Division Opinion Letter - FLSA2009-3 (Jan. 14, 2009).  Similarly, in Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir. 1999), the First Circuit noted that:
[T]he deposition testimony demonstrates that Valerio understood that her fixed weekly salary was to be compensation for potentially fluctuating weekly hours. She admits she was told that the hours were indefinite—“8:30 to whenever”—and that she understood that there “possibly” could be work days that would last longer than eight hours. She also understood, and accepted at the time, that Putnam did not intend to provide overtime pay if she worked more than 40 hours in a particular week.  Additionally... [d]uring the first eleven months of her employment, Valerio routinely worked without complaint more than 40 hours per week without extra pay.
Id. at 39.  Relying on these facts, the court held that there was a clear mutual understanding that “Valerio’s fixed salary would be compensation for however many hours she worked each week” and affirmed the district court’s use of the fluctuating workweek method of calculating overtime.  Id. at 40.
In Mayhew v. Wells, 125 F.3d 216 (4th Cir. 1997), the Fourth Circuit held, while affirming the district court’s award of damages based on the fluctuating workweek method, that “the existence of [a ‘clear mutual understanding’] may be based on the implied terms of one’s employment agreement if it is clear from the employee’s action that he or she understood the payment plan.”  Id. at 219.  See also Zoltek v. Safelite Glass Corp., 884 F. Supp. 283 (N.D. Ill. 1995)  (inferring an “implied-in-fact agreement” that employee was to receive the same salary regardless of how many hours worked where he had worked fluctuating hours for 30 months for a consistent salary and never protested).
In Griffin v. Wake County, 142 F.3d 712 (4th Cir. 1998), the court held that an employee need not agree to the use of the fluctuating workweek but only need understand its features, stating:  “We are unable to find, and the EMTs [plaintiffs] have not identified, any case in which a court has required that employees consent to the fluctuating workweek plan to satisfy section 778.114—employees need only understand it.”  Id. at 714.  The court went on to hold that while the employer’s requirement that employees sign an explanatory memorandum is not necessary to demonstrate a clear mutual understanding:  “it [the signed explanatory memorandum] is certainly probative of the employees’ clear understanding of the fluctuating workweek plan.”  Id.  In finding the requisite understanding, the Griffin court stated that the FLSA does not require that an “employer hold an employee’s hand and specifically tell him or her precisely how the payroll system works.”  Id. at 717.  See also Highlander v. K.F.C. Nat'l Mgmt. Co., 805 F.2d 644, 648 (6th Cir. 1986) (finding clear mutual understanding when employee signed form explaining calculation of overtime under the fluctuating workweek method); Condo v. Sysco Corp., 1 F.3d 599, 602 n.4 (7th Cir. 1993) (noting importance of the fact that employment contract contained chart illustrating method of overtime pay).
According to Samson v. Apollo Res., Inc., 242 F.3d 629 (5th Cir. 2001), an employer need not explain any details of the fluctuating workweek method other than that it compensates employees at a fixed salary for all hours worked in a workweek no matter their number.  Id. at 637.  See also, e.g., Cash v. Conn Appliance, 2 F. Supp. 2d 884, 907 (E.D. Tex. 1997) (adopting and applying this standard of the clear mutual understanding requirement).
b.      Does the Clear Mutual Understanding Requirement Extend to the Method of Overtime Calculation?
The Department of Labor issued an opinion letter stating that there does not need to be a “clear mutual understanding” of the method used to calculate overtime pay, but rather that the “clear mutual understanding” applies only to the understanding that an employee’s salary would remain fixed even if their hours varied.  DOL Wage & Hour Division Opinion Letter - FLSA2009-3 (Jan. 14, 2009), available at http://www.dol.gov/whd/opinion/FLSA/2009/2009_01_14_03_FLSA.pdf.  Similarly, in Bailey v. County of Georgetown, 94 F.3d 152 (4th Cir. 1996), the Fourth Circuit rejected as “contrary to the plain language of the FLSA and [Section 114]” the notion that employers and employees who have adopted a fluctuating pay plan must understand the manner in which overtime pay will calculated.  The court held that the parties must only have reached a “clear mutual understanding” that while the employee’s hours may vary, his or her base salary will not.  Even in cases where “the record is replete with evidence that supports Plaintiff’s contention that he did not understand how his [overtime] pay was calculated,” the courts have applied the fluctuating workweek method while holding that there is no requirement that an employee understand how their overtime pay is calculated so long as there is a clear mutual understanding that their base salary remains fixed regardless of how many hours they work in a week.  Lance v. Scotts Co., 2005 U.S. Dist. LEXIS 14949, at *20 (N.D. Ill. July 21, 2005).
Other courts have held that the clear mutual understanding requirement includes an understanding that employees will be compensated at an overtime rate of half their regular hourly rate.  Monahan v. Emerald Performance Materials, LLC, 2010 U.S. Dist. LEXIS 17034 (W.D. Wash. Feb. 25, 2010) (holding that because the employees had been receiving no overtime pay, there could be no clear understanding between the parties regarding the rate of overtime pay and thus the fluctuating workweek method could not be applied).
Additional cases discussing whether the clear mutual understanding must extend to the method of overtime calculation include:
·         Conne v. Speedee Cash of Mississippi, Inc., 246 Fed. Appx. 849, 851 (5th Cir. 2007) (holding that contemporaneous payment of an overtime premium is an essential prerequisite to using the fluctuating workweek method).
·         Garcia v. Port Royale Trading Co., 198 Fed. Appx. 845 (11th Cir. 2006) (deeming it sufficient that plaintiff understood how much he was paid, that he was paid in the form of a salary, that his hours fluctuated, and that he was paid under the fluctuating workweek method for three years).
·         Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir. 1999)  (requiring clear mutual understanding at the time of hiring that plaintiff’s weekly hours would fluctuate and that the fixed salary provided straight time compensation for all hours worked).
·         Griffin v. Wake County, 142 F.3d 172 (4th Cir. 1998) (explaining that Section 778.114 does not require an employer to explain precise details of the administration of fluctuating hours plan).
·         Flood v. New Hanover County, 125 F.3d 249, 252 (4th Cir. 1997) (holding that contemporaneous payment of an overtime premium is an essential prerequisite to using the fluctuating workweek method).
·         Teblum v. Eckerd Corp. of Florida, 2006 U.S. Dist. LEXIS 6406 (M.D. Fla. Feb. 7, 2006) (rejecting argument that “mutual understanding” could not exist when employees did not know maximum hours they would be required to work).
·         Tumulty v. FedEx Ground Package Sys., Inc., 2005 U.S. Dist. LEXIS 25997 (W.D. Wash. Aug. 16, 2005) (entering summary judgment for defendant, holding that only relevant consideration as to whether a “clear mutual understanding” existed for purposes of fluctuating workweek method is whether parties agreed that salary would be paid for all hours worked, regardless of how many).
·         Stokes v. Norwich Taxi, LLC, 289 Conn. 465, 482-83 (2008) (holding that contemporaneous payment of an overtime premium is an essential prerequisite to using the fluctuating workweek method).

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