Sixth Circuit Affirms Dismissal of FLSA Action Where Employer Paid Twice the Required Overtime Premium Under Fluctuating Work Week Method

This morning, the Sixth Circuit affirmed the dismissal of a collective FLSA action on the grounds that the employer’s fluctuating work week overtime payroll practices did not violate the Fair Labor Standards Act.   Hall v. Plastipak Holdings, Inc. No. 17-1694 (6^th Cir. 2-28-18).   First, the Court noted that the employer paid its employees at twice overtime rate that was legally required under the FLSA regulations.  The plaintiffs’ arguments were based on a misunderstanding of how the fluctuating work week method operates.   Further, it was “absurd” for the plaintiffs to argue that they were not paid a “fixed salary” when their vacation pay banks were docked as they took vacation because that would result in employees being paid twice as much for not working.  The Court also rejected their argument that they were prevented from conducting discovery as to whether the employer would dock their salary if they missed work after exhausting their vacation banks because the plaintiffs never raised this argument before the trial court and cannot raise arguments – even good ones – for the first time on appeal.

As explained by the Court:

Various methods can be used to calculate this overtime premium, depending on the particular employment circumstances.  One such method is the “Fluctuating Workweek” (“FWW”) method, described in 29 C.F.R. § 778.114(a).  Under this approach, employees receive a fixed salary as compensation for all hours worked, whether above or below forty hours, plus an overtime premium for each overtime hour.  Id.

             . . .. .

The FWW method can only be used if four requirements are met: (1) the employee’s hours fluctuate from week to week; (2) the employee receives a fixed salary that does not vary with the number of hours worked (excluding overtime premiums); (3) the fixed salary at least equals the minimum wage; and (4) the employer and employee share a “clear mutual understanding” that the employer will pay the fixed salary regardless of the number of hours worked.  29 C.F.R. § 778.114(a).

The plaintiffs disputed that they were paid a fixed salary or that they had agreed to this method of compensation.    However, the plaintiffs had each signed a detailed agreement specifying how their overtime would be calculated and they would be paid, including numeric examples.  They also accepted paychecks using this method for years without complaint or objection.

The Court observed that the employer paid its employees a higher overtime rate than required by the FWW regulations:

[T]he FWW method calculates overtime premiums according to the following formula:

            overtime premium = ½ x (salary/40 hours +overtime hours) x overtime hours

The parties agree that [the employer] did not use this formula.  Instead, [it] used a different one: 

            overtime premium = (salary/40 hours)          x overtime hours

When compared, these formulae show that [the employer’s] approach was more generous than the FWW’s approach in two ways.  First, [the employer] used a higher base salary rate: it divided base salary by 40 hours, whereas the FWW method divides base salary by the sum of 40 hours and overtime hours.  Second, [it] paid the full salary rate for overtime hours, whereas the FWW method requires only a minimum of half of the salary rate.  Taken together, these changes ensured that Plaintiffs were paid more than twice the minimum overtime premiums.  That was plainly permissible.  § 778.114(a)

The Court rejected as “absurd” the plaintiffs’ argument that they were not paid a “fixed salary” when their accrued vacation pay banks were “docked” after they requested and took time off work.

Reducing an employee’s bank  of vacation time is obviously appropriate in such circumstances.  See DOL Opinion Letter FLSA,   . . .  Indeed, it would be absurd to suggest that a vacationing employee should be paid twice for not working, once because the employee took paid vacation  and a second time because the employee is guaranteed a fixed salary.

The Court also rejected the plaintiff’s objection to being paid the same rate of pay for both overtime and regular 40 hours because they misunderstood the FWW method.  Hourly employees are not guaranteed a “fixed salary” regardless of how many hours they work.  If they work less than 40 hours, they are paid less than 40 hours, whereas  under the FWW, they receive the same pay every week whether they work more or less than forty hours.  So, hourly employees have not been paid at all for the hours worked over 40 in a week, which means that their overtime is time and a half.  In contrast, FWW employees have already been paid a fixed salary for all hours worked, even those over 40.  Because they have already been paid the “time” with the fixed salary, they only get “a half” for the overtime hours.   Nonetheless, the defendant employer in this case paid them twice that amount and gave them not just time and a half, but time and time again.  Still, the employees brought suit because they wanted time and time and a half.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.