Is it Lawful for an Employer to Pay Employees 1/2 Time for Overtime Work? By: Mitchell L. Feldman, Esq. Managing Partner Feldman, Fox & Morgado PA Tampa, Florida - www.floridatrialattorneys.net
In limited situations, an employer may pay an employee 1/2 their regular hourly rate for all overtime hours worked and be in compliance with the Fair Labor Standards Act.
TAMPA, FL, May 22, 2012 /24-7PressRelease/ -- In limited situations, an employer may pay an employee 1/2 their regular hourly rate for all overtime hours worked and be in compliance with the Fair Labor Standards Act. In order to be compliant with the FLSA, the Employer must satisfy pre-requisites and it has the burden of proof. Generally, an employer must pay all non-exempt employees at least one and one half times the employee's regular rate of pay for all hours worked over 40 hours in a week. 29 USC Section 207(a)1.
The Fluctuating Work Week (FWW) method of calculating compensation, found at CFR Section 778.114 is used only if the following requirements are met:
1) the employee's hours fluctuate from week to week;
2) the employee receives a fixed weekly salary which remains the same regardless of the number of hours worked during the week; (any deductions for missing time by employee negates the application of the FWW method).
3) the fixed amount is sufficient to provide compensation at a regular rate not less than the legal minimum wage;
4) the employer and the employee have a clear and mutual understanding that the employer will pay the employee a fixed salary regardless of the number of hours worked; and
5) the employee receives a fifty percent (%50) overtime premium in addition to the fixed weekly salary for all hours worked in excess of 40 during the week.
Any employee receiving bonuses or commissions in addition to their salary destroys the application of the FWW and 1/2 time pay. If the employee's hours are fixed (such as scheduled for 50 hours every week), the FWW cannot apply, as the requisite fluctuating hours are missing.
In this FWW method, the employee's regular rate of pay is determined by dividing the fixed salary by the total number of hours worked during the week. Then the employee is paid 1/2 this regular rate of pay for all hours in excess of 40 hours instead of 1.5 times the regular rate of pay. If the total hours worked are large and the salary small, the employee may in reality earn less than minimum wage and also destroy the application of the FWW or 1/2 time pay.
An employer that fails to properly pay an employee the 1/2 time for all overtime wages worked may not be able to rely upon the FWW if a claim or lawsuit is brought to recover overtime wages under the FLSA where the employee was misclassified as EXEMPT from overtime wages by the Employer. Most recently in the 11th Circuit, the Middle District of Florida held that an employer was foreclosed from using the FWW, 1/2 time pay in a misclassification case and Ordering that any award of overtime wages shall be at time and a half (one and one half the employee's regular rate of pay). Delia West v. Verizon Services Corp., (M.D. Fl. 2011)
Remember, classifying an employee as a salaried employee has no bearing on whether the employee is entitled to overtime wages under the FLSA. An employer may not be able to retro-actively apply the FWW method to cheat an employee out of 1.5 times their regular rate of pay for all overtime wages worked. As one court so eloquently stated regarding why retro-application of the FWW should not be permitted:
"The significance of the employee's lack of knowledge of non-exempt status cannot be overstated. The fundamental assumption underpinning the FWW is that it is fair to use it to calculate overtime pay because the employee consented to the payment scheme. But in the context of an FLSA misclassification suit when consent is inferred from the employee's conduct, that conduct will always, by definition, have been based on the false assumption that he was not entitled to overtime compensation. The job will have been advertised as a salaried position.
The employee, if he raised the issue, will have been told that the salary is all he will receive, regardless of how many hours he works. That is the very nature of a salaried, exempt position. When it turns out that the employer is wrong, and it is learned that the FLSA required the employer to pay the employee an overtime premium, the notion that the employee's conduct before he knew this is evidence that the employee somehow consented to a calculation method for the overtime pay that no one even knew was due, is perverse. If the FWW requires consent in some fashion, the employee's actions before he knew he was due overtime pay just cannot logically be the basis of that consent."
ABIGAIL F. RANSOM, et al. v. M. PATEL ENTERS., INC., et al, UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS, AUSTIN DIVISION
Courts interpreting the FWW have found that an employer's payment of premiums for off-shore, day-off or holiday work assignments has violated the FLSA requirement that the employee receive a fixed salary. See, e.g. Brumley v. Camin Cargo Control, Inc., No. 08-1798 (JLL), 2009 U.S. Dist. LEXIS 126785, 2010 WL 1644066 *6-7 (D.N.J. Apr. 22, 2010). Also Courts have also found that the payment of other shift premiums to employees precludes application of the FWW method. See, e.g. O'Brien v. Town of Agawam, 350 F.3d 279, 288-89 (1st Cir. 2003) (payment of a $10 night shift differential to police officers was inconsistent with the fixed salary requirement for application of the FWW method); Dooley v. Liberty Mut. Ins. Co., 369 F.Supp. 2d 81, 85-86 (D.Mass. 2005) (payment of a premium rate for Saturday work when less than 40 hours have been worked precludes application of the FWW method).
Under the FWW, employers are not al-lowed to make deductions to an employee's fixed salary for sick leave or vacation leave, even if the employee has not yet accrued sufficient leave to cover their absence. Hunter v. Sprint Corp., 453 F.Supp.2d 44, 60-61 (D.D.C. 2006). .In the 5th Circuit case of Donovan v. Brown Equipment & Service Tools Inc., 666 F.2d 148, 154, for there to be considered irregular hours within meaning of section 7(f) of the FLSA 29 USC 207(f), there must be in a significant number of weeks, hours below forth hours as well as above.
In Rainey v. American Forest & Paper Association, the court analyzed section 778.114 and found that its requirements include a clear mutual understanding that the employee is entitled to overtime compensation and contemporaneous payment of overtime premiums. 26 F. Supp. 2d 82, 99-102 (D.D.C. 1998); see also Hunter v. Sprint Corp., 453 F. Supp. 2d 44, 58-62 (D.D.C. 2006) (discussing application of the FWW method in a misclassification case). Other courts have rejected the use of the FWW method in misclassification cases because there is no contemporaneous payment of overtime compensation in such cases.
See, e.g., Cowan v. Treetop Enters., 163 F. Supp. 2d 930, 941 (M.D. Tenn. 2001) (citing Rainey); Scott v. OTS Inc., 2006 U.S. Dist. LEXIS 15014, 2006 WL 870369, (N.D. Ga.) (citing Rainey). The "contemporaneous payment of overtime compensation is a necessary prerequisite for application of the fluctuating workweek method." Rainey v. American Forest & Paper Ass'n, Inc., 26 F. Supp. 2d 82, 100 (D. D.C. 1998); see also Cowan v. Treetop Enters., Inc., 163 F. Supp. 2d 930, 941 (M.D. Tenn. 2001) (explaining that section 773.114 "requires a contemporaneous payment of the half-time premium for an employer to avail itself of the fluctuating workweek provision").
Courts find support for this contemporaneous payment requirement in the text of section 778.114, which states "[w]here all facts indicate that an employee is being paid for his overtime hours at a rate of no greater than that which he receives for non-overtime hours, compliance with the Act cannot be rested on any application of the fluctuating workweek overtime formula." See also Russell v. Wells Fargo & Co., 672 F. Supp. 2d 1008, 1012 (N.D. Cal. 2009) (finding section 773.114 requires the contemporaneous provision of overtime pay). This reasoning leads those courts that have adopted it to the conclusion that 29 C.F.R. section 778.114 is not satisfied where an employee merely received his salary and did not receive any overtime payments at the time the overtime was worked, such as in a misclassification case. Courts following this line of authority, therefore, conclude that misclassified employees are entitled to time-and-one-half their regular rate of pay for all overtime hours worked. Russell, 672 F. Supp. 2d 1008.
Thus, the background and policy of the FLSA, the Supreme Court's decision in Overnight Motor Overnight Motor Transportation Co., Inc. v. Missel - 316 U.S. 572 (1942) and the DOL's 1968 interpretive rules demonstrate that the FWW method cannot be used to calculate overtime pay retroactively for the purposes of determining damages under the FLSA in a misclassification case. Section 778.114, which the DOL promulgated in light of Overnight Motor, provides legal prerequisites that cannot be satisfied in a misclassification case. See also Monte Russell and Daniel Freedman v. Wells Fargo and Company, 672 F.supp 2d 1008. N.D. Cal., F.Supp. 2d 1008; 2009 U.S. Dist. LEXIS 107044;
In Perkins v. Southern New England Telephone Co., 2011 WL 4460248 (D.Conn. 2011), Judge Janet Hall of the District of Connecticut held that the employees were required to be paid one and one half times their regular rate of pay for all overtime hours, rejecting the FWW and 1/2 time pay in this misclassification case. The 4th Circuit Court of Appeals and the 7th Circuit REJECT the application of the FWW (CFR 778.114) and the 1/2 time pay in misclassification cases. Urnikis-Negro v. Am. Family Prop. Servs., 616 F.3d 665, 681 (7th Cir.2010);Russell v. Wells Fargo & Co., 672 F.Supp.2d 1008, 1013 (N.D.Cal.2009); Ayers v. SGS Control Servs., Inc., 2007 U.S. Dist. LEXIS 19634 at *40-42 (S.D.N.Y. Feb. 27, 2007); Rainey v. Am. Forest & Paper Assoc., Inc., 26 F.2d 82, 100-02 (D.D.C.1998).
As Judge Hall stated: "Although several circuits have applied section 778.114 in a misclassification case, the court does not find those decisions to be particularly persuasive, especially given the lack of analysis regarding the difference between applying the fluctuating workweek method prospectively- where both the employer and the employee have agreed regarding compensation- and retrospectively-when the employer has made a unilateral, and incorrect, decision that an employee is exempt from being paid overtime at all.
The court agrees with other district courts that have held that the plain language of section 778.114 requires that, in order to employ the fluctuating workweek method of overtime compensation, an employer-pursuant to a clear agreement- must contemporaneously pay employees an overtime premium of one-half the regular rate for overtime hours. See 29 C.F.R. section 778.114 ("... such a salary arrangement is permitted ... if the amount of the salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage ... and if he receives extra compensation, in addition to such salary, for all overtime hours worked.") (emphasis added). As SNET has not paid contemporaneous overtime premiums, section 778.114 is inapplicable to this case.
See also McCumber v. Eye Care Center of America, Inc. M.D. La, and Desmond v. PNGI Charles Town Gaming, L.L.C. , (4th Cir 2011).
Whether the employer can lawfully escape being held liable to pay time and a half for all overtime wages after failing to pay employees anything and treating them as exempt, still may be the case in some instances depending upon the jurisdiction and the facts. Several courts of appeal have held that employers can benefit from retroactive application of the fluctuating workweek. See Clements v. Serco, Inc.,530 F.3d 1224, 1230-31 (10th Cir.2008); Valerio v. Putnam Assocs. Inc., 173 F.3d 35, 40 (1st Cir.1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138 (5th Cir.1988). In such cases, the Employer is financially rewarded for misclassifying employees and exempt and NOT paying time and half because even if found to be in violation of the FLSA, paying 1/2 time plus liquidate damages is substantially less than paying time and one half plus liquidated damages.
Feldman Fox & Morgado, extensively practices in the area of labor and employment law and the Fair Labor Standards Act (FLSA) in Florida and throughout the U.S. Any employee working in excess of 40 hours per week and NOT being compensated at one and one half (1.5) their regular rate of pay for all overtime hours should contact a labor and employment attorney to review the facts. The Statute of Limitations to claim unpaid overtime wages is generally 2 years, unless it can be proven the failure to properly compensate the employee was willful, in which case the Statute of Limitations can be extended to 3 years. What this means is that if an employee has been working longer than 2 years without being paid a full time and a half for overtime wages, these sums are lost forever or not recoverable generally. Time is of the essence.
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