Friday, June 25, 2010

The "Fluctuating Workweek" Method of Calculating Overtime Under the FLSA: Can the Fluctuating Workweek Method be Used to Calculate Damages in Misclassification Cases?

Often, in settling misclassification claims, employers argue that they should be permitted to use the fluctuating workweek method for calculating overtime on the ground that the misclassified worker meets the test for use of the fluctuating workweek method of determining overtime.  Several circuits have adopted this approach and held that employees who meet the requirements for being paid overtime under the fluctuating workweek method should have their damages in misclassification cases calculated according to that method.  Clements v. Serco, 530 F.3d 1224 (10th Cir. 2008) (holding the only clear mutual understanding required by statute is a fixed salary for fluctuating hours, not an understanding regarding payment of overtime, and using the fluctuating workweek method to calculate damages); Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir. 1999) (holding that there was a clear mutual understanding that “Valerio’s fixed salary would be compensation for however many hours she worked each week” and affirming the district court’s use of the fluctuating workweek method of calculating overtime); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138–39 (5th Cir. 1988) (finding that when employer and employee have agreed on fixed salary for varying hours, method of computation calls for dividing actual hours worked each workweek into fixed salary).  But see, Rainey v. American Forest and Paper Ass’n, Inc., 26 F. Supp. 2d 100, 101 (D. D.C. 1998) (holding that Blackmon “was not supported by any explanation or effort to analyze the relevant statutory and regulatory language”);  In re Texas EZPawn Fair Labor Standards Act Litigation, 2008 WL 2513682, at *7 (W.D. Tex. June 18, 2008) (rejecting Blackmon as “fundamentally flawed” because “[i]t was supported by no discussion or analysis of the issues, and assumed—wrongly—that § 778.114 has the force of law”); Cowan v. Treetop Enters., 163 F. Supp. 2d 930 (M.D. Tenn. Aug. 16, 2001) (rejecting Blackmon’s retroactive application of the fluctuating workweek).

Plaintiffs argue that such an approach ignores the plain language or the regulation and the need to interpret exceptions to the FLSA’s remedial goals narrowly.  Some courts have agreed with plaintiffs making these arguments and held that the fluctuating work week method cannot be used to calculate damages in misclassification cases.  For example, in Brown v. Nipper Auto Parts, 2009 U.S. Dist. LEXIS 43213 (W.D. Va. May 21, 2009), the court was faced with cross motions for summary judgment  pertaining to whether Plaintiff was exempt from the FLSA’s overtime provisions and, if not, whether the employer could use the fluctuating workweek basis for paying unpaid overtime.  The court held that since the misclassified worker did not meet the requirements for being paid using the fluctuating workweek, then the employer could not use the fluctuating workweek method to calculate the overtime due.  The court ordered overtime pay at one and one-half times plaintiff’s regular rate.  Other cases that have addressed the issue of whether in the settlement of a misclassification case the employer can use the fluctuating workweek method of determining overtime include:
·         Monahan v. Emerald Performance Materials, LLC,  2010 U.S. Dist. LEXIS 17034 (W.D. Wash. Feb. 25, 2010) (holding that overtime must be calculated at the time-and-a-half rate as there was no “clear mutual understanding” that overtime would be calculated with the fluctuating workweek method).
·         Russell v. Wells Fargo and Co., 672 F. Supp. 2d 1008 (N.D. Cal. Nov. 17, 2009) (“If Defendants’ position [seeking to apply the fluctuating workweek method in a misclassification case] 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.”).
·         In re Texas EZPawn Fair Labor Standards Act Litigation, 633 F. Supp. 2d 395 (W.D. Tex. June 18, 2008) (“Where an employee is misclassified, it is impossible for there to be the requisite mutuality.”).
·         Ayers v. SGS Control Servs., Inc. U.S. Dist. LEXIS 76539, at *2 (S.D.N.Y. Oct. 9, 2007) (“Ayers II”) (holding that as the defendant had violated the fixed salary requirement of the fluctuating workweek method, it could not have damages calculated under the fluctuating workweek method).
·         Scott v. OTS Inc., 2006 U.S. Dist. LEXIS 15014 (N.D. Ga. March 31, 2006) (holding that the plain language of Section 778.114 requires contemporaneous payment of overtime).
·         Hunter v. Sprint Corp., 453 F. Supp. 2d 44 (D.D.C. 2006) (concluding that the fluctuating workweek method should not “be used as a fall-back whenever employers mistakenly classify employees as FLSA-exempt”).
·         Cowan v. Treetop Enters., 163 F. Supp. 2d 930 (M.D. Tenn. Aug. 16, 2001).  “The Defendants’ prior assertion of exempt status for these employees and the lack of contemporaneous payment of the 50% overtime to unit managers bar the Defendants' reliance upon Section 778.114(a) [the regulation allowing for the fluctuating workweek method].”  The court also rejected using the fluctuating workweek as the “preponderance of the evidence shows an agreed 10-hour work day schedule.”  A fixed weekly schedule is incompatible with the fluctuating workweek method and the proper overtime rate is time and a half.
·         Rainey v. American Forest and Paper Ass’n, Inc., 26 F. Supp. 2d 100, 102 (D. D.C. 1998) (“If defendant believed that plaintiff was exempt from § 207(a), such that she was entitled to no overtime compensation, then it was not possible for it to have had a clear mutual understanding with plaintiff that she was subject to a calculation method applicable only to non-exempt employees who are entitled to overtime compensation.”).
·         Cash v. Conn Appliances, Inc., 2 F. Supp 2d 884 (E.D. Tex. 1997) (holding that occasional violations of the fluctuating workweek requirements do not result in a broad invalidation of the method when calculating damages).
Between January 14 and 16, 2009, the then-Acting Wage and Hour Administrator issued 35 Opinion Letters.  One of these Opinion Letters, FLSA 2009-3 (Jan. 14, 2009), available at, specifically allows for the use of fluctuating workweek method in calculating damages in misclassification cases.  Plaintiffs argue that Opinion Letter 2009-3 is not persuasive for the following reasons:

1.      It fails to analyze the clear mutual understanding and contemporaneous overtime payment requirements of Section 778.114;
2.      It fails to consider that the FLSA is a remedial statute and thus exceptions and exemptions to it should be construed narrowly; and
3.      It creates incentives for employers to violate the FLSA as it is cheaper to misclassify an employee and the pay damages calculated by the fluctuating workweek method than to pay an employee time-and-a-half overtime.

If a court find that the fluctuating workweek method should not be used to calculate damages, there remains a question regarding how to calculate the regular hourly rate (which will then be multiplied by 1.5 to determine the overtime rate). Plaintiffs argue that courts should use the 40-hour week (not a higher figure) as the denominator for the calculation. See, e.g., Brumley v. Camin Cargo Control, Inc., 2009 U.S. Dist. LEXIS 126785 (D.N.J. Apr. 22, 2010); Ayers v. SGS Control Servs., Inc. U.S. Dist. LEXIS 76539 (S.D.N.Y. Oct. 9, 2007).

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