Various news items published last Friday afternoon intimated that a part of the 2012 federal omnibus appropriations law now exempts automobile-dealership service writers and similar employees* from the federal Fair Labor Standards Act's overtime requirements.  Those reports appear to have been mistaken so far as we can tell, but the spending provision does contain at least some good news in this respect.

As we noted previously, in April the U.S. Labor Department decided against acknowledging the FLSA Section 13(b)(10)(A) overtime-exempt status of dealership employees doing the typical work of service writers, service advisors, etc.  DOL thus revived its previously-disavowed interpretation that "[e]mployees variously described as service manager, service writer, service advisor, or service salesman who are not themselves primarily engaged in the work of a salesman, partsman, or mechanic as described above are not exempt under section 13(b)(10)."  29 C.F.R. § 779.372(c)(4)(emphasis added).

Section 113 of Friday's "Department of Labor Appropriations Act, 2012" says, "None of the funds made available by this Act may be used by the Secretary [of Labor] to administer or enforce 29 CFR 779.372(c)(4)."  This directive does not change the Section 13(b)(10)(A) exemption itself, but the provision does preclude DOL from devoting any of its 2012 funding to efforts to "administer or enforce" this service-writer interpretation.

However, Section 113 does not prevent current or former service writers or similar employees from pushing DOL's service-writer interpretation in support of their own FLSA overtime lawsuits.  Whether and to what extent DOL officials might explore the limits of Section 113's "administer or enforce" language by offering background assistance to any such individuals remains to be seen.  Employers facing lawsuits of this kind should certainly be alert for signs that DOL is doing so.

^*  At least one such report erroneously referred to "service technicians".

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

Many employers find nowadays that at least some workers are unable to read, write, or do simple arithmetic beyond the lowest levels (if at all).  Management wants to give the employees mandatory training in these areas, but not if that means incurring overtime costs when the instructional time causes the employees' hours worked to exceed 40 in a workweek.  But, under the right circumstances, there is a little-known way to increase employees' basic academic abilities without having to pay FLSA overtime premium for the time they spend learning.

The General FLSA Training Rules

The U.S. Labor Department (DOL) says that time spent in employer training generally must be considered compensable work, unless four criteria are met.  That is, the training time has to be added together with the employee's other hours worked (including for overtime-pay purposes), except where:

♦   The employee's attendance is truly voluntary;

♦   The employee's attendance is outside his or her regular working hours;

♦   The training is not directly related to the employee 's current job; and

♦   The employee performs no productive work during attendance.

29 C.F.R. § 785.27.  Where remedial education is concerned, an employer offering the instruction typically wants to require employees to undergo it.  Also, it is often necessary to schedule the classes at some point during the employee's normal workday.

The Section 7(q) Overtime Exception

The FLSA's Section 7(q) (link to reproduction below) allows the employer to pay for up to ten overtime hours of qualifying instruction at the employee's straight-time regular rate of pay.  In creating this exception, Congress wanted to encourage employers to help provide the fundamental educational background some employees need to succeed in the job market, both now and in the future.  The exception is therefore available for certain basic education offered to employees who lack a high-school diploma or educational attainment at the eighth-grade level.  The training provided cannot be job-specific.

DOL says that the remedial training must be designed to provide reading and other basic skills at an eighth-grade level or below, or to fulfill the requirements for a high-school diploma or a General Educational Development ("G.E.D.") certificate.  29 C.F.R. § 778.603.  Also, DOL rules state that the training has to occur during discrete periods of time set aside for it and must be conducted away from the employee's work station "to the maximum extent practicable".  Id.  DOL regulations require employers to keep accurate records of both an employee's time spent in the remedial education each workday and each workweek and the compensation the employee is paid for this time.  29 C.F.R. § 516.34.

Don't Forget Other Overtime Laws

Of course, the Section 7(q) exception does not override overtime obligations imposed by any different federal law or by any other jurisdiction's requirements.  An employer considering a remedial-training program designed around Section 7(q) should carefully evaluate whether the program will meet the requirements of all other applicable overtime provisions.

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

 FLSA Section 7q.pdf (14.69 kb)

Affected employers will no doubt have a variety of wage-hour questions in the aftermath of Hurricane Irene.  The number and scope of the issues raised might well be practically endless.  In this post, we address in very general ways the federal Fair Labor Standards Act topics that experience suggests will be among the most-pressing.

◊   What do we do about lost time records for work already performed but not yet paid?

If the only records of hours worked are lost or unusable, then there is no perfect solution.  Re-create the most accurate accounting you can under the circumstances.  Perhaps the preferred approach is to ask each employee to make the best-possible estimate of his or her hours worked. You should obtain the employee's written acknowledgement of his or her best recollection and should include the employee's authorization allowing later corrections in worktime and pay should more accurate hours-worked information become available.

◊   How do we track employees' worktime without our electronic/computerized time clocks?

Employees may record all hours worked by using handwritten timesheets.  To ensure accuracy, each employee should enter his or her own time and should record the actual times when the employee's work starts and stops each workday.

◊   As we recover, must we keep paying overtime on top of our other burdens?

At this time, there is no FLSA "emergency" exception that relieves the obligation to pay FLSA-required wages.  Employees subject to the FLSA's overtime provision must receive overtime premium at a rate of at least 1.5 times their regular rates of pay for all hours worked over 40 in the designated seven-day workweek.

If employees are covered by a collective bargaining agreement, it might contain additional overtime provisions requiring more than the FLSA does.  Perhaps the terms of the agreement relax those requirements in emergencies.  However, a collective bargaining agreement cannot override the FLSA's requirements.

◊   Can an employee volunteer to perform recovery services for us without pay?

The FLSA does not permit employees to "volunteer" unpaid time to the employer under any but the narrowest of circumstances.  For example, if a manufacturing facility sets up a hotline or makes other arrangements to provide a clearinghouse for information about the status of the workplace and employee reporting times, non-exempt employees volunteering to perform such services are engaged in compensable hours worked for FLSA purposes.  Employers considering any kind of unpaid "volunteer" services by their employees should evaluate the legality of doing this carefully and in advance.

◊   Must we keep paying employees who are not working?

Under the FLSA, for the most part the answer is "no".  FLSA minimum-wage and overtime requirements attach to hours worked, so employees who are not working are typically not entitled to the wages the FLSA requires.

One possible FLSA-related exception is for employees treated as FLSA-exempt whose exempt status requires that they be paid on a "salary basis".  Generally speaking, if such an employee performs at least some work in the designated seven-day workweek, the "salary basis" rules require that he or she be paid the entire salary for that particular workweek.  There can be exceptions here, too, such as might sometimes be the case where the employer is open for business but the employee decides to stay home for the day.

Also, non-exempt employees paid on a "fluctuating-workweek" basis under the FLSA normally must be paid their full fluctuating-workweek salaries for every workweek in which they perform any work.  There are a few exceptions, but these are even more-limited than the ones for exempt "salary basis" employees.

Of course, an employer might have a legal obligation to keep paying employees because of, for instance, an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   What can we do about charging missed time to vacation and leave balances?

The FLSA generally does not regulate the accumulation and use of vacation and leave.  The "salary basis" requirements for certain FLSA-exempt employees can implicate time-off allotments under various circumstances, some guidance on which the U.S. Labor Department has provided in opinion letters accessible here and here.

Again, however, what an employer may, must, or cannot do where paid leave is concerned might be affected by an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   When is travel time "hours worked" for purposes of computing FLSA wages due?

FLSA travel-time "rules" are not seamless, up-to-date, or necessarily logical or consistent with common sense.  The best-known ones are that:

•   Normal commuting between home and work typically is not considered to be hours worked, and

•   Travel between one assignment and another during a workday typically is hours worked.

However, even these principles are subject to exceptions and elaboration.  The best starting point is to consider each scenario an employer faces under the U.S. Labor Department's basic interpretations on travel time.  They are compiled at 29 C.F.R. §§ 785.33-785.41 and may be accessed here.

________________

Remember that other requirements, such as those applying to government contractors or subcontractors and those of states or other jurisdictions, can also be relevant to these questions.

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

The U.S. Labor Department's unfounded April fluctuating-workweek commentary (earlier post here) continues to complicate many pre-existing pay plans and to cause employers to narrow their views of the available compensation alternatives.  This is the foreseeable (and apparently intended) result of what DOL said.  Unfortunately, some observers are compounding the impact of DOL's commentary by suggesting that its ramifications are more dire than ought to be the case.

We have previously noted that the federal Fair Labor Standards Act grants no regulatory authority to DOL to make such pronouncements.  Probably for this reason, the commentary purported to draw substance from sprinkled-in references to the seminal U.S. Supreme Court case of Overnight Transportation Co. v. Missel, 316 U.S. 572 (1942), which embraced the concept underlying the fluctuating-workweek calculation.  But DOL's effort is an illusion.

For example, Missel does not support DOL's assertion that paying bonuses, incentive payments, or other additional amounts is "incompatible" with figuring overtime on a fluctuating-workweek basis.  The Court did not address this proposition at all; it simply proceeded from the facts as they were presented (which involved a weekly wage for whatever hours the employee worked) and explained how FLSA overtime was to be computed on those facts.  The Court did not say, or so much as even imply, that the fluctuating-workweek calculation was inappropriate where other forms of pay are in the picture.

DOL also opined that fluctuating-workweek overtime might create an incentive to work employees long hours because it "results in a regular rate that diminishes as the workweek increases . . .."  On this premise, DOL found it inappropriate "to expand the use of this method of computing overtime pay beyond the scope of the current regulation."  Of course, the FLSA does not prescribe and in fact does not even address any maximum number of hours that adult employees can be required to work.  Moreover, DOL is not authorized to decide whether to "expand" or contract the use of the fluctuating-workweek method for computing overtime.  The Supreme Court's reading of the FLSA trumps DOL's musings in this area, and DOL must have overlooked this statement in Missel:

It is true that the longer the hours, the less the rate and the pay per hour.  This is not an argument, however, against this method of determining the regular rate of employment for the workweek in question.

316 U.S. at 580.

Having thrown sand in the gears, DOL has offered no specific elaboration upon what the actual effects of its commentary might be.  Others have filled this gap with suppositions that are not anchored in first principles.

As an illustration, assume that an employee receives a salary of $500 each workweek as straight-time pay for all hours worked and is also paid commissions on her sales made during all her hours worked each workweek.  Assume also that, in one workweek, she works 50 hours and is due $100 in commissions, for total gross pay of ($500 + $100) = $600.  Even if her commission pay is supposedly "incompatible" with fluctuating-workweek overtime, how much FLSA overtime pay is she due for that workweek?

Some have suggested that her overtime must be computed this way:

($600 ÷ 40 hrs.) = $15 Per Hr. "Regular Rate"
($15 × 1.5 × 10 OT hrs.) = $225,

for total FLSA pay of ($600 + $225) = $825.  In our view, dividing by 40 hours and paying an extra 1.5 times the resulting rate for overtime hours is not required under the FLSA, notwithstanding what DOL said.

Under Missel, the FLSA "regular rate" is determined by dividing the employee's total compensation for a workweek by the total number of hours for which that compensation was paid.  This is so whether the straight-time wages are paid for a fixed number of hours or for a varying number of hours, and it remains the bedrock principle underlying FLSA overtime pay.  See, e.g., 29 C.F.R. § 778.109.  Where the straight-time wages were paid for all of the employee's hours worked, the proper FLSA overtime premium is one-half of a regular hourly rate that declines as the hours worked increase.  See, e.g., 29 C.F.R. § 778.118.

And, more to the immediate point, this is all still true even when a fluctuating-workweek approach is "invalid or otherwise inapplicable."  See, e.g., Opinion Letter of Wage-Hour Administrator No. 1016, 69-73 CCH-WH ¶30,563 (June 24, 1969)(discussed in our earlier post).  In other words, 40 is not automatically the default divisor, and 1.5 is not the inevitable multiplier, even if a fluctuating-workweek approach has been undercut for some reason.  Whatever the basis for the employee's pay is, and even if that basis is somehow legally flawed in whole or in part, the FLSA regular rate and the overtime due still depend upon the number of hours for which the compensation was paid.  Cf. Section 32g07(b), Field Operations Handbook (U.S. Labor Department, February 28, 1986)(40 hours not used as the default divisor even for an invalid "Belo" plan).

Because our hypothetical facts show that the employee's straight-time wages were paid for all of her hours worked, the correct FLSA calculation is:

($600 ÷ 50 hrs.) = $12 Per Hr. "Regular Rate"
[($12 ÷ 2) × 10 OT hrs.) = $60 OT Premium Pay
($600 + $60) = $660,

or $165 less than the first computation.  The principles leading to this approach are independent of whatever DOL's policy preference is, and DOL has no power to curtail them.

That said, unless and until DOL withdraws or repudiates its April statements, or until a court consensus rejecting them emerges, employers should expect investigators and plaintiff's lawyers to press those statements to the hilt.  Even so, the underlying FLSA overtime principles remain unchanged, and employers who are willing to do so should be ready to assert them.

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

In late June, we noted legislation introduced in the Senate and in the House of Representatives that would essentially repeal the federal Fair Labor Standards Act's Section 13(a)(15) "companionship" exemption in any practical sense.  U.S. Labor Department regulations and interpretations elaborate upon how and to whom the exemption may be applied.

Recent correspondence (link below) from the 28-member Eldercare Workforce Alliance to U.S. Secretary of Labor Hilda L. Solis suggests that proponents of such a change are re-directing their focus from legislation to regulatory limitations.  This letter urges DOL to take "timely action" by imposing a "revised interpretation of the exemption that will extend greater federal minimum wage and overtime protection under FLSA to the more than 1,500,000 paid home‐ and community‐based care workers who provide essential services to our nation's older adults and people with disabilities."  It is highly likely that the "revised interpretation" this advocates will amount to gutting the exemption by regulation.  Perhaps this reflects a political calculation that the legislative prospects are unfavorable.

For some time now, DOL's regulatory agenda has included a very general item expressing an intention to revisit the exemption.  A number of questions were raised about this in the U.S. Wage and Hour Division's July 13 short-on-transparency "webchat", but these were met repeatedly with DOL's reply that it is "premature" to discuss whatever the looming "proposal" is.  The sole detail to emerge is that DOL expects to publish a Notice of Proposed Rulemaking in October.

While of course it remains to be seen what actually transpires, one may reasonably suspect that at least some of the forthcoming proposal will consist of concepts that also appear in the pending legislation.  For example, the proposal might well say that the exemption cannot apply to a worker who is employed by the agency supplying his or her services to an elderly person or to the person's family.

It is also probable that the time period for commenting on and registering objections to this proposal will be relatively brief.  Those who oppose cutting-back on the "companionship" exemption must be vigilant and should be prepared to act on short notice.

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

Eldercare Workforce Alliance Letter.pdf (184.20 kb)

Another effort is afoot to limit the federal Fair Labor Standards Act's Section 13(a)(15) "companionship" exemption to the point of non-existence in any practical sense.  Last week, apparently-identical bills (S. 1273 and H.R. 2341 -- see currently available version below) were introduced in the Senate and the House which would have precisely this effect.  Similar measures were proposed last year, but the newer ones would impose even-narrower restrictions.

The FLSA's minimum-wage and overtime requirements do not apply to "any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves .  .  .."  "Domestic service employment" refers to services of a household nature the worker performs in or about the private home of the person by whom he or she is employed.  The term "companionship services" means providing care, fellowship, and protection to people who cannot care for themselves due either to advanced age or to physical or mental difficulties.  Additional U.S. Labor Department regulations and interpretations explain how and to whom the exemption may be applied.

If the proposed amendment becomes law, only an employee employed "on a casual basis" to provide companionship services could be eligible for exemption under Section 13(a)(15).  In turn, the phrase "on a casual basis" would be defined so as to make the exemption available only if:

♦   The companionship employment is irregular or intermittent;

♦   The work is not performed by someone whose vocation is to provide companionship services;

♦   The worker is employed only by the family or household using his or her services, rather than by another employer or agency (this is almost certainly designed to exclude even joint-employment arrangements involving, for instance, the worker, a home-healthcare agency, and the service recipients);

♦    The worker's employment by the employer is limited to no more than five hours "per week" (whether a calendar week, a workweek, or some other kind of "week" the bills do not say, nor do they clarify whether the five-hour limit is to be viewed as an average or as an each-"week" proposition); and

♦    The worker's employment by the employer may not extend beyond a "time period" of twelve "weeks" in a calendar year.

These last two restrictions are more stringent than was their counterpart in last year's proposed changes.

It is likely that most employees providing companionship services (and apparently all such workers employed by home-healthcare agencies and similar organizations) would no longer fall within the amended exemption.  It is entirely foreseeable that, instead of improving the circumstances of "direct care workers" and "older adults" whom the amendment purports to help, the changes would expose the interests of both groups to the principle of unintended consequences at the worst-possible time.

The bills have been referred to legislative committees at this point, so it does not appear that there will necessarily be immediate action.  Nevertheless, the Service Employees International Union supports the bills, so opponents of these measures should take them seriously and should waste no time in making their views known to their Senators and Representatives.

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

S.1273 H.R. 2341.pdf (49.95 kb)

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.

The federal Fair Labor Standards Act's Section 13(b)(10)(A) provides an overtime exemption for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers."

This exemption was adopted in the mid-60s.  DOL initially said that the exemption included a service manager who was primarily engaged in diagnosing the mechanical condition of cars brought in for repair, assigning the work to employees, directing and checking their work, and being responsible for the work performed.  But soon thereafter, DOL reversed itself and began to say that dealership employees who primarily engaged in selling vehicle repairs and maintenance services and in related activities were not exempt.  DOL adopted an interpretative provision saying, "Employees variously described as service manager, service writer, service advisor, or service salesman who are not themselves primarily engaged in the work of a salesman, partsman, or mechanic as described above are not exempt under section 13(b)(10)."  29 C.F.R. § 779.372(c)(4).

Following a series of DOL court losses and other adverse rulings, DOL's Wage and Hour Division threw in the towel.  In 1987, the Division added this to its internal Field Operations Handbook:

Employees variously described as service writers, service advisors, service managers, or service salesmen whose primary duty is to record the condition of a vehicle and write up a report indicating the parts and mechanical work needed have been construed as within the exemption in Sec[tion] 13(b)(10)(A) by two appellate courts (Fifth and Sixth Circuits) and two district courts (in the Eighth and Tenth Circuits). Consequently, [the Wage and Hour Division] will no longer deny the [overtime] exemption for such employees. This policy (that these employees are within the exemption) represents a change from the position in [29 C.F.R. §] 779.372(c)(4), which will be revised as soon as is practicable.

FOH Section 24L04(k).  After almost 24 years, the current administration's DOL apparently found it "practicable" to say essentially, "Never mind."  In last week's Final Rule, DOL announced that it was not going to revise 29 C.F.R. § 779.372(c)(4).  For more details, read our partner John Donovan's Legal Alert on the topic.

At least one source has opined that dealership employers now have no choice but to start treating these workers as being subject to the FLSA's overtime requirements.  Paying them overtime is always one alternative, but there are others.

One might be for a retail dealership to implement a pay plan that meets the requirements for the FLSA's Section 7(i) overtime exception for commission-paid employees of a retail establishment.  We have summarized this provision in an earlier post.

And some dealership employers might be willing to fight if need be to convince a court that prior rulings (and DOL's interpretation before April 5) have it right.  Some might be particularly so inclined in federal appellate jurisdictions governed by decisions that have already rejected DOL's April 5 position.  For one thing, internal DOL policy statements indicate that it will not seek to enforce its views in a federal appellate jurisdiction that has rebuffed them (whether DOL will subvert these policies by assisting private complainants in those jurisdictions remains to be seen).  Moreover, current or former employees who sue in these jurisdictions will have to overcome those prior rulings.  Employers who consider taking this posture will want to give special consideration to implementing a back-up Section 7(i) plan.

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

The U.S. Labor Department's April 5 Final Rule attempts to transform the principles of fluctuating-workweek pay plans in two ways.  Remarkably, DOL apparently plans to do so, not by facing up to these matters by actually proposing a straightforward revision of the relevant interpretative provision at 29 C.F.R. § 778.114, but instead via remarks in the preamble accompanying the Final Rule.

The Basic Concepts

A non-exempt employee's FLSA overtime pay must be based upon his or her regular hourly rate.  This is determined by dividing the employee's total compensation for a workweek by the total number of hours worked for which the compensation was paid.  See 29 C.F.R. § 778.109.

Under a fluctuating-workweek plan, the employee receives a salary that is paid as straight-time compensation for all of his or her hours worked in a workweek, however many or few, including hours worked over 40.  Thus, for overtime hours, the employee is due only an additional one-half of the rate obtained by dividing all of the workweek's hours into the salary (this rate can never be less than the minimum wage, of course).  The employee's regular hourly rate therefore fluctuates, that is, it decreases as his or her hours worked increase, and vice versa.  The employee is also due additional overtime premium for most other compensation he or she receives for an overtime workweek.

It is worth emphasizing from the outset that Congress has given no generalized regulatory authority to DOL where the FLSA's overtime requirements are concerned.  See, e.g., Reich v. Interstate Brands Corp., 57 F.3d 574, (7th Cir. 1995), cert. den., 516 U.S. 1042 (1996).  Thus, the fluctuating-workweek method is not some exception, exemption, or DOL-conferred dispensation.  See, e.g., Davis v. Friendly Express, Inc.,  2003 WL 21488682 (11th Cir. 2003); Samson v. Apollo Resources, Inc., 242 F.3d 629 (5th Cir. 2001); Dooley v. Liberty Mutual Insurance, 307 F.Supp.2d 234 (D. Mass. 2004).  Instead, Section 778.114 simply acknowledges the arithmetical realities of applying the basic regular-rate rule in one set of circumstances.  Notwithstanding the misinformed approaches of some courts in recent times, Section 778.114 does not (and may not) represent a set of prerequisites for using fluctuating-workweek plans.  "The fluctuating workweek doctrine is not a benefit to be withheld .  .  ., but rather is an interpretive tool to give effect to the understanding of the parties."  Dooley v. Liberty Mutual Insurance, supra.

Other Pay Besides The Salary

DOL's comments say that employers who rely upon fluctuating-workweek plans for non-exempt employees may not also pay these workers bonuses, premium payments, or other additional amounts.  This is supposedly "incompatible" with paying on a fluctuating-workweek basis.  This is a complete reversal of the views expressed in 2008, when the Bush administration's Wage and Hour Division proposed to make it clear that bonuses, premium pay, or other extra sums could be paid in conjunction with a fluctuating-workweek plan, as has been done for decades.

DOL recounts a variety of supposed horribles that it believes could result from making payments in addition to the salary, including the possibility that an employer might shift a large portion of an employee's pay away from a salary toward these other amounts.  This would, DOL says, potentially cause wide disparities in an employee's wages.  DOL provides no evidence that this has actually occurred in the 72 years since the law was passed, during which time innumerable employers have paid additional sums to employees otherwise compensated on a fluctuating-workweek basis.  More importantly, the FLSA has nothing whatsoever to do with whether there are disparities in an employee's pay from week to week.

As for what the FLSA actually does address – overtime compensation – even if extra payments purportedly undercut a fluctuating-workweek plan, general regular-rate principles lead to the same amount of overtime premium.  DOL recognized this long ago in Opinion Letter of Wage-Hour Administrator No. 1016, 69-73 CCH-WH ¶ 30,563 (June 24, 1969), in which the Wage and Hour Administrator said:

Where the salary for fluctuating hours of work method of compensation is invalid or otherwise inapplicable and an employee in a single workweek works at two or more different types of jobs .  .  . for which different nonovertime rates of pay are paid, the regular rate for that week is the weighted average of such rates.  That is, the total earnings from all rates are divided by the total number of hours worked in the workweek.  The employee would then be entitled to receive one-half of the resulting average hourly rate for the hours worked in excess of [40 in a workweek].

(Emphasis added).

DOL's other principal rationale apparently was that additional payments will somehow encourage the use of fluctuating-workweek plans, which the current administration disfavors.  DOL articulated no factual or evidentiary basis for this prediction, but in any case it is not up to DOL whether this concept is to be encouraged or discouraged – fluctuating-workweek calculations are simply an arithmetical fact.  And if this compensation method is so undesirable, why does DOL permit it at all?  The answer is that DOL has no authority to do otherwise.

An Alleged "Fluctuation" Requirement

DOL's comments also claim that the fluctuating-workweek method cannot be used unless the employee's hours of work actually fluctuate.  Nowhere does Section 778.114 say that the method is limited in this way, including that DOL still has not changed the provision to say so.  DOL's remarks refer without elaboration to Section 32b04b of its internal Field Operations Handbook, which prescribes a half-time calculation for a salaried employee "if" the worker's hours fluctuate from week to week.  But this discussion clearly uses "if" to mean "in this situation", rather than "on the condition that" (and the latter usage would not have legal force even so).

DOL is coy about what it means by "fluctuate".  The comments do not say how often or by what magnitude this supposedly must happen, for example.  DOL refers to Flood v. New Hanover County, 125 F.3d 249 (4th Cir. 1997)(upholding application of the fluctuating-workweek method), a case in which the employees' hours varied because they worked rotating schedules of different fixed lengths; so much for any meaningful use of the word "fluctuate".  If DOL instead has in mind that an employee's hours must vary irregularly and unpredictably, then its research apparently failed to disclose cases rejecting such an approach.  See, e.g., Griffin v. Wake County, 142 F.3d 712 (4th Cir. 1998); Mitchell v. Abercrombie & Fitch Co., 428 F.Supp.2d 725 (S.D. Ohio 2006).

In any event, once again the proper analysis leads to a half-time calculation for the hours covered by a salary whether or not there is any "fluctuation".  As an illustration, assume that a non-exempt employee is paid a weekly salary of $500 which is understood to be his or her straight-time pay for up to the individual's fixed, regularly-scheduled workweek of 50 hours.  Assume further that the employee's actual hours worked each workweek seldom vary above or below 50.  For workweek-after-workweek, the employee's total compensation required by the FLSA is:

($500 ÷ 50 hrs.) = $10.00 Regular Rate
($10.00 × ½ × 10 OT hrs.) = $50 OT Premium
($500 + $50) = $550 Total FLSA Pay Due.

If the employee works 45 hours in an isolated workweek, the pay due is:

($500 ÷ 45 hrs.) = $11.11 Regular Rate
($11.11 × ½ × 5 OT hrs.) = $27.78 OT Premium
($500 + $27.78) = $527.78 Total FLSA Pay Due.

See, e.g., 29 C.F.R. §§ 778.109, 778.325.

These half-time calculations are proper notwithstanding that the employee's hours worked are practically invariable.  They are unremarkable and appropriate applications of the regular-rate principle in Section 778.109.

What To Do Now?

Employers should anticipate that DOL investigators and plaintiff's lawyers will seize upon the Final Rule's commentary in order to attack the use of a fluctuating-workweek approach in many situations.  In fact, some believe that the commentary is indeed designed to influence courts to adopt DOL's views.  Only time will tell what the outcome of these disputes will be.

One option, then, is to stop using fluctuating-workweek plans altogether.  This appears to be DOL's preference.  Of course, some employers might find it possible to design alternative compensation methods that have exactly the same effect, such as commissions-only pay plans or piece-rate plans.

Or, an employer might decide to rely upon the fluctuating-workweek method only where the employee's hours "fluctuate" (whatever that means), and only for employees whose compensation is limited to a salary plus the additional overtime premium pay required in an overtime workweek.

Other employers might elect to continue with the fluctuating-workweek pay plans they have without regard to DOL's commentary, recognizing that they must be prepared to defend themselves someday in a possible DOL investigation or in court.

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

The answer to our March 14 Quick Quiz is "$110".  The federal Fair Labor Standards Act does not prohibit the employer from recouping some of the loss in that workweek, but it does restrict the amount.

So What Are The Limits?

The employer may not require or allow Alex to restore the loss to the extent that this would (1) cut into the required minimum-wage rate for his first 40 hours worked in the workweek, or (2) cut into any of the time-and-one-half overtime pay due for his hours worked over 40 in the workweek.  These limitations apply even though the employer published a policy in advance, and even though Alex signed something saying that he would make the payment.  Furthermore, it makes no difference whether he pays in cash, or by check, through payroll deduction, or in some other way.

Therefore, the maximum his employer can recover that workweek under the FLSA is [($10 − $7.25) × 40 hrs.] = $110.  Alex must be paid the full [($10 × 1.5) × 5 OT hrs.] = $75 for his overtime work; none of that amount can be deducted or otherwise directly or indirectly turned over to the employer in that workweek.  The balance of ($150 − $110) = $40 may only be recouped in one or more future workweeks, subject to the same restrictions.

These FLSA rules also apply to many other kinds of deductions, payments, or repayments affecting non-exempt employees.  For example, Alex's employer could neither deduct nor accept payment from Alex for bank fees or charges relating to the dishonored check to the extent that this cuts into his FLSA-required pay.  Other illustrations include cash shortages, damage to or loss of the employer's tools or equipment, the costs of required uniforms, and unreturned employer property.

USDOL Says There Are Additional Requirements

In a June 2000 enforcement policy (link below), and in a February 2001 opinion letter, the U.S. Labor Department sought to impose further conditions and restrictions upon overtime-workweek deductions even to the narrow extent discussed above.  Among them are that:

♦   There must be an advance agreement or understanding (to which the employee affirmatively agrees or assents) specifically covering the items for which deductions will be made and how the amounts will be determined.
  
♦   The deductions must be bona fide and "legitimate" ones, including that they must fall within the agreement or understanding and must not be prohibited by federal, state, or local law.

♦   Permissible deductions may not cut into the highest applicable minimum wage (such as where a state's minimum is greater than the FLSA's).

♦   The deductions may not otherwise evade the FLSA's overtime requirements (such as if the deductions were made only in overtime workweeks, or if the deduction amount was increased in overtime workweeks).

One may question whether DOL is empowered to adopt or enforce a number of the edicts in these detailed advisory materials, but nonetheless its positions are what they are.

Don't Forget About Other Laws

Applicable state or local laws might further limit what an employer is permitted to do, or they might even prohibit these kinds of deductions or payments altogether.  The parameters could also be different under specialized federal or state wage-hour laws that might apply to public construction, to providing services to government entities, to certain government supply contracts, or to other publicly-funded work.

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

 FOH 32j08 06 30 00.pdf (187.19 kb)