Hasan et al v. GPM Investments LLC
Filing
281
ORDER granting 237 Motion in Limine. Signed by Judge Stefan R. Underhill on 8/27/12. (Munoz, A.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
Mian and Zahra Hasan,
Individually and o/b/o similarly situated
Individuals,
Plaintiffs,
No. 3:07cv1779 (SRU)
v.
GPM Investments, LLC,
Defendant.
RULING AND ORDER ON MOTION IN LIMINE TO PRECLUDE USE OF THE
FLUCTUATING WORK WEEK
Plaintiffs, a group of workers, and defendant GPM Investments (―GPM‖) dispute how to
calculate damages when an employer misclassifies workers as exempt from the protections of
labor laws. GPM owns and operates a chain of convenience stores and gas stations along the East
Coast. GPM hired plaintiffs to work as ―store managers‖ and paid plaintiffs a fixed salary with
no extra compensation for long hours. Plaintiffs filed suit claiming that federal and state laws
required GPM to pay them a higher wage for hours worked in excess of 40 hours per week. GPM
maintains that those laws do not apply to supervisors like store managers, and, thus, the company
had no obligation to pay plaintiffs overtime. The pending motion concerns the proper formula for
calculating an award should a jury find in the plaintiffs’ favor.
For the reasons set forth below, plaintiffs’ motion to preclude use of the fluctuating work
week is granted.
DISCUSSION
A. Background: FLSA and Overtime
1
The Federal Labor Standards Act (―FLSA‖ or the ―Act‖)1 guarantees workers a minimum
wage and limits the hours in a regular work week. Passed in the depths of the Great Depression,
the Act was intended to ensure a ―fair day’s pay for a fair day’s work.‖ Overnight Motor Transp.
Co. v. Missel, 316 U.S. 572, 578 (1942). Under the Act, an employee can only work a maximum
of 40 hours in a given week, and if a worker’s hours surpass that ceiling, the employer must pay
for the additional hours at ―a rate not less than one and one-half times the regular rate at which
he is employed.‖ 27 U.S.C. § 207(a). At a time of massive unemployment, this overtime
premium applied ―financial pressure [on companies so they would] spread employment to avoid
the extra wage.‖ Missel, 316 U.S. at 578.
The Act uses ―hours‖ as its unit for measuring rates of pay, and this metric creates
challenges in two situations. First, the Act’s commands are subject to a number of exceptions.
Section 13 of the Act removes supervisors, administrative staff, and professionals from the Act’s
reach. See 29 U.S.C. § 213(a)(1). Sometimes employers classify employees as exempt, pay them
salaries, and then later learn a particular role did not qualify as an exempt position and workers
should have been paid an extra premium for overtime. Such employees, however, have never
been paid an hourly wage, and courts are left to reconstruct what their ―regular rate‖ of pay
should have been. Second, the Act allows employers to pay staff in any manner they wish – for
example, by salary, piece rate, or commission. 29 C.F.R. § 778.109. Congress crafted this
permissive rule in order to accommodate the ―almost infinite variety of employment situations‖
in a free market economy. 149 Madison Ave. Corp. v. Asselta, 331 U.S. 199, 203-04 (1947). But
when employers and employees argue over pay, courts must find ways to convert a less common
compensation scheme into a standard hourly rate. At issue here is whether this case presents the
1
Plaintiffs have sued under both the FLSA and the Connecticut Minimum Wage Act (―CMWA‖). But the CMWA
largely mirrors the FLSA with only a few differences that are not relevant to calculating the appropriate rate for
overtime damages. See Andrade v. Kwon, No. 3:08cv749, 2012 WL 3059616 at *4 (Mar. 26, 2012).
2
first problem (reconstructing the appropriate hourly rate absent a violation), the second problem
(converting a non-standard payment into an hourly rate), or both.
B. The Fluctuating Work Week
Defendants argue that this is merely an instance of an employer paying an employee
something other than an hourly wage, and the challenge is not one of measuring damages, but
instead converting an unusual pay scheme into an hourly rate. According to defendants, GPM
paid plaintiffs for a ―fluctuating work week‖— plaintiffs’ hours varied from week to week, and
rather than submit them to unpredictable paychecks based on hours worked, the company paid
them a fixed salary no matter how much time they spent on the job. Thus, plaintiffs’ hourly rate
of compensation differed week to week; during slow weeks it was high, and during busy times
the rate dropped.
The consequence of this distinction – between imputing what an hourly rate should have
been, and converting salaries into hourly rates—is enormous. By way of example, suppose an
employee makes a weekly salary of 1200 dollars. A court is faced with the task of putting her in
the position she might have been in absent a violation. If court divides her salary by the legal
limit of 40 hours, it gets a regular rate of 30 dollars per hour. In a week when the employee
worked 60 hours, she would receive time and half, or 45 dollars per hour, for that additional 20
hours of overtime. Thus, her total compensation should have totaled 2100 dollars (1200 dollars
in base salary plus 900 dollars in overtime).
But what if a court is faced with a fluctuating work week, not a standard overtime
violation? In that same 60-hour week, the worker’s 1200 dollar salary only compensated her at a
rate of 20 dollars an hour, not 30. And, for the additional 20 hours she only wins an overtime
supplement of 10 dollars – she has already gotten the base rate of 20 dollars for every hour she
3
worked, including the extra hours, and was only deprived of the slight bump of an unpaid halftime premium. For that week, then, she would only receive two-thirds of the standard calculation
or 1400 dollars (1200 dollars in base salary plus 200 dollars in an unpaid overtime premium).
This math adds up to a perverse incentive— ―the longer the hours the less the rate of pay per
hour.‖ Missel, 316 U.S. at 580.
C. Missel and the Department of Labor’s Guidelines on Fluctuating Work Week
Agreements
GPM acknowledges that the fluctuating work week results in lower awards, Def. Opp. at
15, but notes that the Supreme Court has long sanctioned such an arrangement. In Overnight
Motor Transp. Co. v. Missel, supra, the Supreme Court allowed a trucking company to pay a
fixed salary to a rate clerk who worked varying hours, sometimes clocking long hours logging
shipments in busy seasons, and working far fewer hours during lulls. 316 U.S. at 574, 580. The
case presented the Court with a different issue: the employer argued that the FLSA only required
that companies pay high enough salaries to cover the statute’s minimum wage requirement, and
any overtime only had to compensate employees at one and a half times that minimum wage
rate. The Court held otherwise; the statute covered all levels of ―pay by the week, to be reduced
by some method of computation of [an] hourly rate,‖ and that rate, rather than the minimum
wage, should be used to calculate overtime. Id at 579. It noted that Missel’s contract set ―no . . .
limit upon the hours which petitioner could have required respondent to work for the agreed
upon wage . . . and [did not include a] provision for additional pay in the event the hours worked
required minimum compensation greater than the fixed wage.‖ Id. at 581. Thus, the employer
could not argue that both parties had understood that the base rate of pay was merely minimum
wage, in the words of the Court, ―implication cannot mend a contract so deficient in complying
with the law.‖ Id.
4
The Court then turned to calculating the appropriate rate of compensation. It focused on
the facts underlying Missel’s contract with Overnight Motor Transport: ―Where the employment
contract is for a weekly wage with variable or fluctuating hours,‖ the hourly rate of
compensation will rise and fall each week according to the number of hours worked. Id. at 580.
Since the parties agreed to fluctuating rates of compensation, a court should calculate the
compensation the week by week, based on a variable rate. Id. at 580.
Though Missel allows employers to pay employees at fluctuating rates, the opinion
provides little guidance about how to distinguish contracts for varying rates of compensation
from a standard salaried position. In an attempt to simplify the application of Missel, the
Department of Labor (―DOL‖) issued ―an interpretive rule intended to codify [the decision].‖
Russell v. Wells Fargo and Co., 672 F. Supp. 2d 1008, 1011 (N.D. Cal. 2009) (relying on
O’Brien v. Town of Agawam, 350 F.3d 279 (1st Cir. 2003)). The rule lays out two requirements
for contracts with fluctuating compensation rates. First, the employee and employer must have a
―clear mutual understanding‖ that the ―fixed salary is compensation (apart from overtime
premiums) for the hours worked each work week.‖ 29 C.F.R. § 778.114(a). In other words, the
parties must strike a bargain that includes two terms— as the main clause instructs, that a fixed
salary will cover base pay no matter the hours worked, and, as the parenthetical phrase suggests,
that employers will cover overtime hours with a separate bonus. The rule goes onto instruct that
overtime will fluctuate depending on the total number of hours worked: ―Since . . . the regular
rate of the employee will vary from week to week . . . [p]ayment for overtime hours‖ will also
vary. Id.
Second, the employee must receive payment of a contemporaneous premium for overtime
hours. According to the rule, employers must include extra pay for overtime in employee’s
5
regular paychecks; in the rule’s words, ―where all the facts indicate that an employee is being
paid for his overtime hours at a rate no greater than that which he receives for nonovertime
hours, compliance with the Act cannot be rested on any application of the fluctuating work week
overtime formula.‖ 29 C.F.R. § 778.114(c); see also Russell, 672 F. Supp. 2d at 1012 (terming
this sentence the ―contemporaneous payment‖ requirement). The FLSA mandates that an
employee receive a higher rate of compensation for extra hours, and if a paycheck compensates
every hour in a week at a constant rate, then the employer has not kicked-in a bonus for
overtime.
The DOL issued its guidance without entertaining comments from outside stakeholders,
and the rule merits less deference than one that has survived the gauntlet of a more formal
process. See Christensen v. Harris Co., 529 U.S. 576 (2000) (holding that agency rules passed
outside of a formal adjudication or notice-and-comment rulemaking deserve less deference). But
the agency is still the institution with the greatest ―body of experience‖ with the FLSA, and its
―informed judgment‖ should have the ―power to persuade.‖ Skidmore v. Swift Co., 323 U.S. 134,
139 (1944). Indeed, even Circuit Courts that have declined to hew to the rule’s criteria have
acknowledged that the DOL’s position is ―entitled to a measure of respect‖ and is a ―reasonable
construction of the FLSA’s overtime requirements.‖ Urnikis-Negro v. Am. Family Prop. Serv.,
616 F. 3d 665, 676 (7th Cir. 2010).2
2
In a nearly identical case, the Seventh Circuit declined to use the DOL’s rule as a guide. The rule, it reasoned, is
―forward looking,‖ and only describes how employers and employees should structure an agreement for future
compensation. Urnikis-Negro, 616 F.3d at 677. The rule is not designed, nor can it be used, the court held, to fashion
a remedy for a violation in the past.
But courts always look backwards— cases only arise after an arrangement sours. While the DOL’s rule
certainly provides instructions to parties seeking to form a lawful agreement, it also provides criteria for courts to
separate a contract for fluctuating compensation from an agreement for a standard salary. Even in a more typical
fluctuating work week case, one in which an employer and employee disagree about the existence of a contract for
variable compensation, a court will use the rule to assess the legality and nature of the parties’ past agreement. That
is exactly what is required here: GPM asserts that it hired the plaintiffs to work a fluctuating work week. Both
6
D. The Fluctuating Work Week in a Misclassification Case
Plaintiffs contend that the fluctuating work week method of compensation is never
appropriate in a case where an employer has misclassified an employee as exempt from the
FLSA’s protections. They argue that misclassification cases only present one issue – how to
reconstruct what the rate of pay would have been absent a violation. Defendants counter that in a
misclassification case ―a fixed salary is always meant to compensate for all hours worked,‖ and
under Missel, a fluctuating work week calculation ―provides the precise remedy.‖ Def. Opp. at
12. In other words, a misclassification case does not require that the court recreate a rate, but,
instead, that it convert a unusual payment method into an hourly rate. Plaintiffs have the better
argument and one need look no further than the DOL’s guidance to understand why.
When an employer misclassifies an employee, the resultant employment contract will
never fulfill any of the requirements of section 778.114. First, parties who believe that an
employee merits no overtime payment cannot simultaneously believe that any overtime will be
paid at varying rates. Put another way, in a misclassification case, the parties never agreed to an
essential term of a fluctuating work week arrangement—that overtime would be paid at different
rates depending on the number of hours worked per week. See Perkins v. Southern New England
Telephone Co., 2011 WL 4460248 at *3 (D. Conn. Sept. 27, 2011), Russell, 672 F. Supp. 2d at
1013-14, Rainey v. Am. Forest & Paper Assoc., 26 F.2d 82, 100-02 (D.D.C. 1998). To assume
otherwise converts every salaried position into a position compensated at a fluctuating rate.
Second, misclassified employees will never have received any kind of bonus or premium
for overtime. Indeed, parties will have explicitly agreed, as they did in this case, that employees
will not earn extra money for long hours. See Def. Opp. Ex. A Job Description (listing the
Missel and the DOL’s rule codifying Missel provide guidance on how to determine whether parties came to such an
agreement or not.
7
position as explicitly ―exempt‖ from overtime compensation). At best, an employer could argue
that the flat salary had an overtime bump embedded within it, that it was high enough so that
employees remained well compensated for the hardship of working more than 40 hours per
week. But this argument fails for two reasons: First, such an agreement would be illegal. An
employee would have to waive her statutory right to extra compensation for overtime. Barrentine
v. Arkansas-Best Freight Sys., 450 U.S. 728, 740 (1981) (noting that ―FLSA rights cannot be
abridged by contract‖ because this would ―nullify the purposes of the statute‖). Second, Missel
explicitly rejected such an argument. The court reasoned that the contract at issue did not comply
with the FLSA because ― it [did not include a] provision for additional pay in the event the hours
worked required minimum compensation greater than the fixed wage.‖ Missel, 316 U.S. at 581.
In this case, GPM also fails to meet a third criterion enunciated in the DOL’s guidance—
that an employee’s hours actually fluctuate. After it lays out the requirements for a contract for a
fluctuating rate, the rule warns that ―typically, such salaries are paid to employees who do not
customarily work a regular schedule of hours‖ and are ―in amounts agreed on by the parties as
adequate straight-time compensation for long work weeks as well as short ones.‖ 29 C.F.R. §
778.114(c). For a fluctuating work week arrangement to make sense to both parties, employees
should offset their relative loss from a grueling work week far above forty hours with the benefit
of full pay for weeks that clock-in at less than forty hours. Otherwise, employees have not
bargained for anything but decreasing marginal pay as they work longer and longer hours at
work. This is what the Court divined in Missel; a rate clerk would sometimes work long hours
when shipments flooded in, and sometimes not at all when business dried up. 3 Here, plaintiffs
3
Though the Supreme Court did not review Missel’s pay records, the District Court did. The lower court noted that
―his periods of work varied greatly from day to day,‖ and that he was paid full salary even in weeks where he did
not work at all. Missel v. Overnight Motor Transp. Co., 40 F. Supp. 174, 176 (D. Md. 1941).
8
never had a short week; GPM’s job description stated that store managers were expected to work
a minimum of 52 hours per week. See Def. Opp. Ex. A, Job Description. To the extent their
hours fluctuated, it was because they sometimes worked almost 100 hours per week. See
Plaintiff’s Motion in Limine, Ex. A, Timesheets. This variance, between weeks with a moderate
amount of overtime hours, and weeks where a majority of hours worked exceeded the 40 hour
threshold, is not the same as the up and down fluctuation contemplated by the DOL and by the
Court in Missel.4
CONCLUSION
In this case, as is the case with most FLSA claims, if a jury finds GPM liable for failing
to pay overtime, this court will have to review the evidence in the record and determine at what
rate an employee would have been paid absent a violation. That decision, however, will not rely
on the fluctuating work week method of calculating rates of pay. 5 Plaintiffs’ motion in limine
(doc. # 237) is granted.
It is so ordered.
Dated at Bridgeport, Connecticut, this 27 day of August 2012.
/s/ Stefan R. Underhill
Stefan R. Underhill
United States District Judge
4
The 52 hour minimum requirement also distinguishes this case from arrangements such as the one in UrnikisNegro. There, a real estate firm offered to pay an appraiser a yearly salary of $52,000.00 no matter the time spent on
the job; at the time the parties entered into a contract, neither party mentioned a minimum hourly requirement. 616
F. 3d at 667.
5
In its brief, GPM argues that even if the Court were to reject the use of the fluctuating work week in this case, the
Court should determine the plaintiffs’ regular rate by dividing their salaries by 52 hours, not 40. Defendant points to
the plaintiffs’ job description as evidence to support its claim—the description clearly states that store managers
should expect to work a minimum of 52 hours per week. The Court takes no position at this time regarding the
proper denominator for calculating plaintiffs’ damage award. Should the jury find in favor of the plaintiffs, the Court
will hold a hearing on damages in which GPM can present evidence on the proper base rate of pay.
9
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