Awaiting Clarity On Fluctuating Workweek In Pa. - Law360

AWAITING CLARITY ON FLUCTUATING WORKWEEK IN PA
 
The fluctuating workweek, or FWW, method is a way for employers to calculate overtime pay for salaried employees who are eligible for overtime pay, but whose working hours fluctuate each week. One of the risks of using the FWW method is that it may not comply with certain state wage and hour laws. In Pennsylvania, for example, several U.S. district courts[1] have previously ruled that the FWW method violates the overtime requirements of the Pennsylvania Minimum Wage Act, or PMWA, and its implementing regulations. On Dec. 22, 2017, the Superior Court of Pennsylvania issued the first state appellate decision on this issue, holding that a key component of the FWW method violates the PMWA and associated regulations.[2] On July 16, 2018, in Chevalier et al. v. General Nutrition Centers, the Pennsylvania Supreme Court granted the defendant employer allowance to appeal from that decision.[3]

The FWW method is based upon the U.S. Supreme Court opinion in Overnight Motor Transportation Co. v. Missel[4] and further described in the U.S. Department of Labor interpretive bulletins.[5] The Fair Labor Standards Act requires that whenever a nonexempt employee works more than 40 hours in a workweek, the employer must pay the employee “a rate not less and one and one-half times the regular rate at which he is employed.”[6]

However, under the FWW method, the employer is only required to pay the employee one-half times the employee’s regular rate for any hours exceeding 40. The validity of this method is based on a clear mutual understanding between both parties that the employee will be paid a fixed amount for the straight time portion of all hours worked each week, regardless of whether those hours are fewer than 40 or greater. Therefore, when using the FWW method, the employee’s fixed salary would cover the “one” portion of the “one and one-half” requirement of the FLSA for any overtime hours worked, and the employer would merely be required to make up the additional “one-half” to be compliant. The regular rate upon which the one-half is based would vary on a week-to-week basis depending on the number of hours worked.

In Pennsylvania, the status of the FWW method under state law has been questionable for years. The FLSA and PMWA are very similar in many respects, and courts generally construe the PMWA according to interpretations of the FLSA. However, there are a few key differences between the two statutes that raise doubt as to the propriety of the FWW method under Pennsylvania law. Unlike the DOL interpretive bulletins that adopt the FWW method as an acceptable means of calculating overtime compensation, the regulations that implement the PMWA are completely silent on the issue — at least, as it is commonly understood.[7]

Instead, the Pennsylvania regulations merely provide that nonexempt employees must be paid at least one and one-half times the employee’s regular rate of pay for all hours worked beyond 40 hours in a workweek.[8] In addition, neither the PMWA nor its regulations provide a definition of what constitutes the “regular rate” of pay. Under the FLSA, the “regular rate” is determined by dividing the total remuneration for employment during the workweek by the total number of hours actually worked.[9] The PMWA also provides that the “regular rate” should include all remuneration for employment paid to the employee, but until recently there were no court opinions or regulations that provided any instructions as to whether the total remuneration for salaried employees should be divided by the total number of hours worked or by the standard 40 hour workweek in order to determine the “regular rate.”[10]

In 2013, two employees of General Nutrition Centers Inc., or GNC, challenged the use of the FWW method in Pennsylvania when they filed a class action in the Court of Common Pleas of Allegheny County, Pennsylvania, in a case titled Chevalier v. General Nutrition Centers.[11] That action was brought on behalf of nonexempt store managers, assistant managers and senior store managers of GNC to recover unpaid overtime due to the alleged improper use of the FWW method. The trial court granted summary judgment to the employees, holding that GNC’s use of the FWW method to calculate their overtime pay violated the PMWA.[12] On appeal, the Pennsylvania Superior Court partially disagreed with the trial court.[13] The Superior Court held that the first component of the FWW method, that the “regular rate” be calculated by dividing the employee’s weekly salary by all hours worked during the workweek, comports with the PMWA. However, the Superior Court rejected the second component of the FWW method, which allows for the payment of only one-half of the regular rate for any overtime hours, because the PMWA states that employees’ overtime rate shall not be less than one and one-half times the employee’s regular rate of pay.

Now that the Pennsylvania Supreme Court has allowed this decision to be appealed, it is possible that the FWW method could be explicitly adopted in Pennsylvania in accordance with the U.S. Supreme Court opinion in Missel. However, given the fact that the FWW method has been rejected in some fashion by all of the Pennsylvania state and federal courts that have considered the issue to date, employers in Pennsylvania are cautioned not to use the FWW method unless and until the Pennsylvania Supreme Court explicitly adopts it. In addition, paying nonexempt employees with a fixed salary carries its own risks and requires the careful tracking of hours worked in order to comply with overtime rules. Because the main benefit of the FWW method (i.e., paying only one-half of the regular rate for overtime hours) is not currently available in Pennsylvania, some employers may want to consider paying all nonexempt employees on an hourly basis.