April 1st, 2013 | Comments Off on Eleventh Circuit Issues Sweeping Opinion Clarifying FLSA Regarding: Salaried Workers and the Fluctuating Workweek

On March 6, 2013, the U.S. Court of Appeals for the Eleventh Circuit issued an opinion in the case of Lamonica, et al v. Safe Hurricane Shutters, Inc., et al, Case 11-15743.  This was an action brought by nine plaintiffs who installed hurricane shutters for the defendant who claimed that the defendants had failed to pay them at one and one half times their regular rate for work in excess of forty hours a week.  The case had been tried before a jury, resulting in an award of damages to the plaintiffs.  The defendants then appealed to the Eleventh Circuit.

Finally, the defendant argued that the jury had miscalculated the damages owed to the plaintiffs.  In cases where an employee is paid by the hour, it is relatively simple to determine the overtime rate, i.e., one and one half times the regular hourly rate.  In cases where the pay is by something other than hourly, (e.g., salary, commission, piece work, etc.) the overtime calculation is more complex.  The plaintiffs in this case were salaried workers, i.e., they were paid the same amount regardless of the number of hours they worked each week.

One method of calculating overtime pay for salaried workers is called the “fluctuating workweek method.”  Under this method, the employee’s regular hourly rate is determined on a week by week basis by dividing the salary paid by the number of hours worked.  If the employee worked 50 hours in a week, for example, and her salary for that week was $500.  The fluctuating workweek method would produce a regular rate of $10 an hour (500/50) and an overtime rate of $15 an hour (10 x 1.5).

There are two significant disadvantages with the fluctuating workweek method.  First, the formula produces a smaller regular rate and correspondingly a smaller overtime rate with every hour worked.  If, for example, our $500 a week employee worked 60 hours in a week, her regular hourly rate would be $8.33 (500/60).  Her overtime rate would then be $12.50 (8.33 x 1.5).  Assume further that the employee worked a different number of hours each week.  Her regular rate and her overtime rate would then also be different each week.

The second disadvantage of the fluctuating workweek is the remedial effect.  The fluctuating workweek method assumes that the employee has already been paid a legal regular rate for every hour worked.  The remedy that she is entitled to, therefore, is the difference between the amount that she was paid and the amount that she should have been paid.  If she has already been paid $10 an hour for every hour worked, therefore, her remedy is payment of an additional $5 an hour for every overtime hour worked.  Under the fluctuating workweek, therefore, an employee who works a 50-hour week for a $500 salary would be entitled to an additional $50 in back pay and $50 in liquidated damages.

The fluctuating workweek method is not the only method for determining the amount of damages owed to a salaried worker in an FLSA overtime case.  In lieu of the number of hours worked, a court could also determine the regular rate based on the number of hours that the salary was intended to compensate.  In the case of our $500 a week employee, for example, assume that her salary was only intended to cover 40 hours a week.  In that case her regular rate will be $12.50 and her overtime rate will be $19.25.  Using this method, there is assumption is that the employee has not been paid at all for her overtime hours.  Ten hours of overtime would thus yield a remedy of $192.50 in back pay and $192.50 in liquidated damages.

The defendants in Safe Hurricane Shutters argued that the lower court had erred by failing to apply the fluctuating workweek method.  The Eleventh Circuit disagreed, finding that “the fluctuating workweek method is not the only or even the default method for calculating damages when an employee is paid a weekly salary.”  Instead, the court held that “the number of hours that the employee’s pay is intended to compensate – not necessarily the number of hours he actually works – is the divisor.”