Recent reports have described more than one scenario in which an employer violated the federal Fair Labor Standards Act because management failed to recognize that non-exempt employees' hours worked over 40 in a workweek were overtime ones.  The employees had performed their work in more than one position during the week, such that their time spent in any particular job did not exceed 40 hours.  However, an employee's hours worked in all of the positions in which he or she was engaged for the employer in the week totaled more than 40.
 
For example, one set of circumstances involved non-exempt restaurant employees.  Several of them typically worked around 25 hours as kitchen assistants for part of a week and about 20 hours as waitstaff at other times in the week.  Because no such employee worked more than 40 hours either as a kitchen assistant or as waitstaff member when the positions were viewed separately, the employer did not consider any of their (25 hrs. + 20 hrs.) = 45 total hours worked to be FLSA overtime.
 
The threshold for FLSA overtime wages is not applied job-by-job.  Instead, the FLSA requires that all of an employee's hours worked for the employer in every job be combined to determine whether the employee has worked more than 40 hours in a single workweek.  If the employee has done so, then he or she is due the FLSA-required overtime pay for the hours worked over 40.  Therefore, when one of the restaurant employees worked a total of 45 hours in both jobs in a workweek, he or she should have received the proper overtime compensation for (45 Total Hrs. – 40 ST Hrs.) = 5 overtime hours.
 
This state of affairs can arise in any industry or setting.  FLSA overtime requirements are not limited to a by-the-position, by-the-department, or by-the-location measurement.  Every employer should be certain that what might be a spreading "Everybody Does It" misconception has not taken root in the employer's own organization.

◊   Have a comment or something else to add?  Please use our comment feature below.

The U.S. Court of Appeals for the Eighth Circuit (with jurisdiction over Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) has re-affirmed that the federal Fair Labor Standards Act permits an employer to change its employees' seven-day workweek, even when one of the stated reasons for the change is to reduce FLSA overtime costs.
 
The underlying lawsuit in Abshire v. Redland Energy Services, LLC was brought by drilling-rig operators whose schedule was to work seven, consecutive, twelve-hour days from Tuesday through Monday, followed by seven, consecutive days off.  Originally, the employer had also designated a Tuesday-through-Monday workweek for these employees.  The employer had used this timeframe to determine how many FLSA overtime hours the operators had worked.
 
The employer decided to change the operators' workweek to a Sunday-through-Saturday one, such that their future hours worked in the seven-day schedule would fall into two, separate workweeks.  This had the effect of lowering the operators' number of overtime hours worked in a single workweek, which in turn decreased the amount of FLSA-required overtime wages they were due.  The employer argued that it had made the change to increase payroll-administration efficiencies and to reduce the employees' FLSA overtime hours and pay.

The operators contended that the FLSA prohibited the employer from changing the workweek in order to reduce their overtime compensation.  In rejecting this argument, the court embraced the propositions that:
 
♦   There is no general FLSA principle requiring that an employee's overtime pay be maximized under his or her schedule;
 
♦   A workweek may be established from the outset so as to limit FLSA-required overtime under an employee's schedule;
 
♦   Changing the workweek in a way that has this effect is therefore also lawful; and
 
♦   Even if an employer's motivation for changing the workweek is to avoid overtime expense, this intention does not in itself mean that the change is an unlawful evasion of the FLSA's overtime requirements.

The court also brushed aside a claim that the FLSA requires a "legitimate business purpose" for adopting a new workweek.  The court said that, so long as the change is intended to be permanent and is otherwise implemented in accordance with FLSA principles, the employer's reasons for doing this are irrelevant.
 
This employer's communication of the workweek change could have complicated its defense had the employees made more of it than they apparently did.  The announcement said, "There will be no adjustment to your work week, which will remain Tuesday-Monday [but] you will begin to have a reduction in overtime hours as your work week will be split into 2 payroll periods."  Using "work week" to mean "schedule", and using "payroll period" to refer to the FLSA "workweek", risks exactly the confusion and potential vulnerability that we remarked upon in our earlier summary of FLSA-related workweek requirements.

◊ Have a comment or something else to add? Please use our comment feature below.

Recent U.S. Labor Department news releases show something important about its current approach to enforcing the federal Fair Labor Standards Act:

♦       An enforcement initiative directed at Long Island, New York full-service restaurants resulted in assessments of more than $2.3 million in back-wages for 578 employees, as well as in civil money penalties of over $200,000.

♦       DOL is conducting a multi-year enforcement initiative focused upon the construction industry in Connecticut and Rhode Island, where 183 investigations of construction-industry employers have so far recovered nearly $3.3 million in back-wages for 1,226 employees.

♦       A DOL enforcement initiative focused upon hand-harvested crops in Florida has generated back-pay of over $156,000 for 689 agricultural workers and approximately $680,000 in civil money penalties.

♦       DOL is conducting a multi-year enforcement initiative focused upon the gas-station industry in New Jersey, where it has already conducted 74 investigations resulting in over $1 million in back-wages for 295 workers.

♦       An ongoing DOL enforcement initiative targeting full-service buffet restaurants in south Florida has to date resulted in 34 completed investigations involving more than $667,000 in back-wages for 271 restaurant employees, as well as in the levy of over $14,000 in civil money penalties.

♦       DOL has embarked upon an enforcement initiative focusing on the residential-care industry in North Carolina, through which officials seek to remedy what they believe to be "systemic violations" in this industry.

As this reveals, DOL's Wage and Hour Division is allocating substantial resources to broad-based regional, state, and local efforts centered around certain industries and employers.  DOL probably feels it appropriate now to make full use of the hundreds of investigators it has hired in the last two years or so, viewing them as being experienced enough to take on these efforts.  The categories involved seem for now to be among those to which DOL has devoted heightened attention in the past, that is, agriculture, day-care/residential care, restaurants, garment manufacturing, guard services, healthcare, hotels and motels, janitorial services, and temporary workers.  However, employers should not assume that the initiatives will be limited to these industries.

DOL is no doubt scheduling selected employers for compliance audits even though no individual has made an FLSA complaint.  And although DOL sometimes undertakes "directed" audits to look into specific issues, management should not necessarily expect an investigator to limit his or her inquiries to these areas.

These efforts are also likely to include compliance reviews of at least some employers whom DOL has previously found to be in violation of the FLSA.  And as the summaries above reveal, it is entirely possible (maybe even likely) that DOL will assert FLSA civil money penalties and/or will take more-serious action if these follow-on audits reveal additional shortcomings.

Employers should immediately confirm that they are fully in compliance with the FLSA and with all applicable state or local laws.

◊   Have a comment or something else to add?  Please use our comment feature below.

Our last post raised questions about how to calculate a non-exempt employee's pay under the federal Fair Labor Standards Act for the timeframe during which the employer adopts a different workweek.

When the FLSA workweek is changed, the period in which the conversion occurs typically involves hours worked falling within, or overlapping, both the new and the old workweeks.  As an enforcement policy, the U.S. Labor Department will deem FLSA wages to have been paid properly if the employer uses a particular computation method.  This approach calls for an employer to:

♦   Assume that the overlapping hours were worked in only the "old" workweek, compute FLSA straight-time and overtime pay due for each of the workweeks, and then total the sums;

♦   Perform the same calculation assuming instead that the overlapping hours were worked in the "new" workweek; and

♦   Pay the employee the greater of the two totals.

See 29 C.F.R. § 778.301, 778.302.

For example, assume that an employer is changing its workweek from one beginning on Monday and running through Sunday to one spanning from Friday through Thursday.  Assume also that an employee paid on an hourly basis at the rate of $10.00 works the following hours during the period of the workweek change:

-------------------- Old WW -------------------

M       T         W        Th        F        Sat      Sun      M      T          W        Th
8      8.25     10        9        7.5      8.5       9         1      8.25     8         8

                                           ------------------- New WW -----------------

This employee's wages would be computed as follows:

Pay for 60.25 "old" workweek's hours:

[(40 hrs. × $10.00) + (20.25 OT hrs. × 1.5 × $10.00)] = $703.75

Pay for 25.25 "new" workweek's hours:

($10.00) × (25.25 hrs.) = $252.50

TOTAL DUE FOR ELEVEN-DAY PERIOD:   $956.25

Pay for 50.25 "new" week's hours:

[(40 hrs. × $10.00) + (10.25 OT hrs. × 1.5 × $10.00)] = $553.75

Pay for 35.25 "old" week's hours:

($10.00) × (35.25 hrs.) = $352.50

TOTAL DUE FOR ELEVEN-DAY PERIOD:  $906.25

Because the first computation produces the greater figure, that is, $956.25, the employer would pay this amount.

Once again, this is something employers should also check into under any applicable laws of a state or other jurisdiction.  For instance, some states might require a different approach or might prescribe a minimum period of advance notice before the new workweek may take effect.

◊   Have a comment or something else to add?  Please use our comment feature below.

Many compensation policies and similar documents refer to wages for non-exempt employees in the context of a "week", a "pay week", a "pay period", "the schedule", an "overtime week", or some other ambiguous word or phrase.  But the timeframe that matters under the federal Fair Labor Standards Act is a term-of-art:  A "workweek".  For instance, with few exceptions, FLSA overtime pay is due for a non-exempt employee's hours worked over 40 in a single workweek, which is not necessarily the same thing as the calendar week or an employee's scheduled week or pay period.

An FLSA workweek is a fixed, regularly-recurring period of 168 hours – that is, seven, consecutive, 24-hour periods – that the employer expressly adopts in order to maintain FLSA compliance.  FLSA recordkeeping regulations require covered employers to select and document at least one such workweek.  The workweek can be set to begin on any calendar day and at any time of day, but thereafter the employer must apply that workweek in complying with the FLSA.

If an employer has not designated and documented a workweek, or if it computes pay based upon some timeframe other than the applicable workweek, this can lead to non-compliance.  As an illustration, for the overwhelming majority of employees whose overtime must be determined on a workweek basis, the FLSA's requirements are not satisfied by paying overtime based just upon the number of hours worked over 80 in a two-week period or upon worktime exceeding 86.67 hours in a semi-monthly period.

What the workweek is can also affect what pay is due to an employee who must be paid on a "salary basis" in order to qualify for a particular FLSA exemption.  For example, the FLSA "salary basis" exemption principles say that the salary need not be paid for any workweek in which the employee performs no work.  However, to decide whether these are the circumstances, one has to know what workweek applies to that employee in the first place.

An employer is permitted to have more than one workweek under the FLSA, and the workweek does not have to be the same for every group of employees or for every location.  It is possible to establish different FLSA workweeks for different groups, for different locations, or even for different people.  Variations in work patterns or tendencies in different workforce segments can sometimes mean that it is advantageous to adopt a different workweek for a particular group or location, or even for a few particular employees.

It is possible to change a workweek, of course.  But an employer may neither do this frequently nor otherwise manipulate the workweek so as to produce a purported series of non-overtime workweeks.  Once the workweek has been established, it remains fixed regardless of the employees' schedules or numbers of hours worked.

Employers should also check into any applicable laws of a state or other jurisdiction to see whether there are any workweek-related requirements or restrictions that are different from or tougher than the FLSA's.

◊   Have a comment or something else to add?  Please use our comment feature below.

Courts and litigants have struggled over how to figure overtime due to an employee who was misclassified as exempt and who was paid a fixed salary for his or her hours worked.  The federal Fair Labor Standards Act requires that non-exempt employees be paid 1.5 times their regular hourly rates for hours worked over 40 in a workweek.

However, for a misclassified salaried employee, satisfying this requirement necessitates a couple of threshold determinations.  First, the regular hourly rate must be derived indirectly and after-the-fact, because the employee was not paid on an hourly basis.

Second, a court must decide how this rate will be used in computing back-pay for hours worked over 40 in a workweek:  Is the employee due 1.5 times this rate for those overtime hours, or is the correct approach to calculate overtime premium by multiplying those hours times one-half of the regular rate?  The answer depends upon whether the employee's salary is seen as having been his or her straight-time pay only for the first 40 hours, or instead for all hours worked. If the salary covered only the first 40 hours, the employee has received no pay for the overtime hours and is owed 1.5 times the rate.  But if the salary was the employee's straight-time compensation for all hours worked in a workweek, including overtime hours, then the employee is due only the half-time overtime premium.  How this gets resolved can have tremendous significance in situations – such as class actions – involving large numbers of overtime hours.

The U.S. Court of Appeals for the Seventh Circuit (Illinois, Indiana, and Wisconsin) recently weighed-in on this in Urnikis-Negro v. American Family Property Services, 2010 WL 3024880 (August 4, 2010)(opinion below).  The plaintiff was misclassified as exempt under the FLSA's administrative exemption, was paid a fixed salary, and worked varying numbers of hours each workweek (usually far exceeding 40).  In fashioning its overtime award, the lower court followed an approach taken by several federal appellate courts and relied upon the U.S. Labor Department's longstanding interpretive rule known as the fluctuating workweek calculation ("FWW") (29 C.F.R § 778.114(a)).  See, e.g., Clements v. Serco, Inc., 530 F.3d 1224, 1230-31 (10th Cir. 2008); Valero v. Putnam Assoc. Inc., 173 F.3d 35, 39 (1st Cir. 1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138-39 (5th Cir. 1988).  The lower court figured a regular rate by dividing the employee's weekly salary by her total hours worked in the workweek, and then calculated her overtime premium by multiplying one-half of that rate times her overtime hours worked in the workweek.  The employee asked the Seventh Circuit to overturn this, contending that the FWW method was inappropriate to her situation.

The Seventh Circuit agreed that the lower court was wrong to rely upon the Labor Department's FWW method as the basis for calculating overtime owed in a misclassification case, concluding that the interpretive rule is forward-looking and is not a remedial measure.  It noted the rule's reference to "a clear mutual understanding" between the employer and the employee, which contemplates a before-the-fact agreement on this method where the employee is paid a fixed salary.  The circuit also observed that the rule speaks of the employee contemporaneously receiving overtime compensation.  In a misclassification situation, the parties have no such mutual understanding, and there is no contemporaneous overtime payment, because the employer has treated the employee as exempt.

Nevertheless, the Seventh Circuit concluded that the lower court reached the correct outcome.  It said that, in the case of a misclassified employee paid a fixed salary to work varying numbers of hours, the regular rate is determined by dividing all of the hours worked in the workweek into the salary for that workweek.  Because the resulting regular rate represents straight-time pay for all the workweek's hours (including overtime ones), the employee is owed the product of multiplying one-half of the regular rate  (i.e., the "half" of "time and one-half") times the total overtime hours.  The circuit relied upon the U.S. Supreme Court's decision in Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942), in which the Supreme Court used this approach under analogous circumstances.  The Supreme Court noted in Missel that its method was consistent with longstanding Labor Department guidance.

Urnikis-Negro represents a principled approach to determining overtime for a misclassified employee.  It avoids the temptation to utilize FWW as a justification, even though the Labor Department's interpretive rule uses the correct arithmetical computation.  Rather, the decision is grounded upon binding Supreme Court precedent, which itself relied upon longstanding, historical guidance from the Labor Department.  In following this clearly correct approach, the circuit was adhering to the guiding general principle on the regular rate, which states: "The regular hourly rate of pay of an employee is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid."  29 C.F.R. Section 778.109.  Urnikis-Negro provides useful clarification and guidance for employers on a computational issue of potentially enormous practical impact in assessing potential exposure in misclassification cases.

EDITOR'S NOTE:  Urnikis-Negro also cited with approval the Labor Department's Opinion Letter No. FLSA2009-3 (Jan. 14, 2009), which was a response to a 2007 Fisher & Phillips opinion request.  Fisher & Phillips did not invoke FWW in its request, but the Labor Department nonetheless predicated its favorable answer upon those principles.  Our request and the reply can be accessed below.

◊   Have a comment or something else to add?  Please use our comment feature below.

2007 Opinion Request.pdf (69.15 kb)

Back-Pay Opinion Letter 01 14 09.pdf (310.29 kb)

Urnikis-Negro v. American Family Property Services.pdf (252.87 kb)