Most employers never explore the more exotic areas of overtime and payment of wages in the Fair Labor Standards Act (FLSA). Most employers would not want to. The following case illustrates more than a few problems that an employer who explores these dangerous and alien lands can confront.
In the case of Betty Black v. SettlePou, PC, No. 12-10972, (5th Circuit Court of Appeals, October 11, 2013), the Plaintiff was a recently promoted paralegal supervisor whom the employer was ultimately found to have misclassified as exempt. The employer, a law firm, made Ms. Black exempt when they put another paralegal under her as her sole report.
Although the HR department told Ms. Black she was exempt, they did not tell her (nor did they know themselves) that an “agreement” was in place that set a Fluctuating Work Week. This agreement was apparently intended by the employee’s supervisor to smooth out the ups and downs of work in the employer’s workplace, and, it was alleged later, had been in place all along.
Under the FLSA, Fluctuating Work Week (or FWW) agreements are legal for non-exempt employees. 29 C.F.R. 778.114(a) explains how and under what circumstances an employer may compensate an employee under a FWW:
An employee employed on a salary basis may have hours of work which fluctuate from week to week and the salary may be paid himpursuant to an
understanding with his employer (emphasis supplied) that he will receive such fixed amount as straight time pay for whatever hours he is called upon
to work in a workweek, whether few or many. Where there is a clear mutual understanding of the parties that the fixed salary is compensation
(apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed
weekly work period, such a salary arrangement is permitted by the Act if the amount of the salary is sufficient to provide compensation to the employee
at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours he works is greatest,
and if he receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay.
The Fifth Circuit Court of Appeals, in reviewing the case, upheld the lower court’s determination that regardless of the FWW agreement in place, the employer’s misclassification of the plaintiff’s position as exempt was incorrect. Further, the employer failed to properly set up the FWW agreement with the employee. Though a formal FWW does not have to be in writing, it does have to be mutually agreed upon.
In the case at hand, neither Ms. Black nor the employer’s own HR department could show that an FWW was in place. In a nod to the power of the employee handbook, the Appeals Court referenced the fact that the law firm’s own handbook described only one work schedule in place. This work schedule was for a standard workweek of 37.5 hours. Nothing about a fluctuating work week was stated.
Two facts pertinent to the resolution of this case were now established: 1) the position was non-exempt and should have been paid overtime, and 2) there was not a legitimate FWW agreement in place. The court then turned to how overtime pay should be calculated for back pay purposes. If the FWW was acceptable, then the FLSA prescribes a method for calculating the missed overtime pay that only calculated overtime pay at one-half. This method was favorable to the law firm, limiting damages to just over $7,000.
However in disqualifying the FWW plan, the Court found that calculation of overtime pay should be the old fashioned way—time and one half for all hours worked over forty in a week. The Fifth Circuit sent the case back to the lower court for a recalculation of damages.
Setting up flexible workweek agreements for non-exempt positions should be done carefully and tailored to the real production needs of an organization and not just to allow for the occasional ups and downs of workloads. In the case at hand, it was probably clear to everyone that the employer realized it had become too loose with work scheduling and pay but thought creating a different pay scheme might carry the day for it.