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Court can’t disregard fluctuating workweek method in calculating overtime for store managers

September 3rd, 2013  |  Ron Miller

Most employees have probably never heard of the fluctuating workweek method (FWW) for calculating overtime pay. However, the concept has been around for nearly 70 years since the Supreme Court first recognized it in Overnight Motor Transp Co v Missel. Now found in Department of Labor regulations at 29 CFR Sec. 778.114. Under Missel, the FWW is the proper method of calculating overtime when an employee is paid a weekly wage and is expected to work fluctuating hours. But sometimes, even the courts get it wrong. That was the case in the district court ruling in Ramson v M. Patel Enterprises, Inc dba Party City, where the court adopted a magistrate judge’s unorthodox methodology for calculating overtime damages and disregarded the FWW method.

Following a jury’s finding that executive managers at certain Party City retail stores were misclassified as exempt from overtime compensation, the district court adopted the magistrate’s methodology for calculating overtime damages. Before the magistrate, the employees had argued for the “EZPawn” method, derived from In re EZPawn LP Fair Labor Standards Act Litig. Generally speaking, this method computes an employee’s “regular rate” of pay by dividing his weekly salary by 40, the number of hours in a standard workweek. An overtime payment of 150 percent of the regular rate for all hours worked over 40 during the workweek is then awarded. The employer, on the other hand, argued for application of the FWW method.

In Ramson, the magistrate divided the employees’ weekly salary by 55, the number of hours he found that their weekly salary was intended to compensate. According to the magistrate the employees had been paid for all hours they were entitled to for the hours zero to 40; for hours over 40 and up to 55, they had been paid their regular rate; and for hours over 55 they had not been paid at all. The magistrate awarded one-half the regular rate for each hour over 40 and up to 55, and for all hours over 55, they received one and one-half times their regular rate.

However, the Fifth Circuit found that there was no support in the record for the magistrate’s conclusion that the parties had an understanding that the employees’ salary was only intended to compensate for a set 55-hour workweek.

Length of workweek. According to the appeals court, the overwhelming evidence showed that the employees’ salary was intended to compensate for all hours worked, and that those hours would fluctuate. Consequently, the magistrate’s calculation — which rejected the FWW method — was based on a misunderstanding of the law and was clearly erroneously. Here, the understood arrangement was not a written agreement that clearly laid out the employees’ terms of employment, observed the appeals court. The magistrate, however, interpreted the parties’ mutual understanding to mean that the employees’ salary compensated specifically for 55 hours per week. Yet, the magistrate’s expressed findings did not support such a view. While there were numerous statements in the record indicating that employees were expected work a minimum of around 50 to 55 hours per week, none of those statements established that the store manager’s salary was intended to compensate for a set 55-hour workweek.

On the other hand, testimony that the magistrate did not consider clearly showed that the managers knew their hours would fluctuate and that their salary would not increase or decrease with those fluctuations. Moreover, the employer’s employment application explicitly stated that stores had extended hours for certain occasions, and applicants were asked: “Can you work flexible schedule where days and number of hours scheduled is different each week.” Further, a review of the weekly data revealed only a handful of times that any of the managers worked a precise 55-hour week, but more often 58 or 59 hours. Thus, the magistrate erred in finding that the mutual understanding was for a workweek specifically only for 55 hours.

Written agreement not required. The magistrate also erred in concluding that because the parties did not have a written agreement Missel did not require the use of the FWW. This assumption was wrong, concluded the Fifth Circuit. Rather, the appeals court observed that there is no authority that requires the agreement to be in writing. Moreover, the job application clearly indicated, in writing, that the employees understood their job included “flexible schedules” and “different hours each week.”

Rather, the appeals court observed that Blackmon v Brookshire Grocery Co was the controlling authority in the Fifth Circuit for resolving this case. Thus, Blackmon and Missel reflect the same instruction: FWW is the proper method of calculating overtime when an employee is paid a weekly wage and is expected to work fluctuating hours. Consequently, the ruling of the district court was reversed and the amount of damages vacated and remanded for recalculation.