Switzer et al v. Wachovia Corporation et al

Filing 97

MEMORANDUM AND ORDER Defendants Motion for Partial Summary Judgment on the Validity of Non-Discretionary Bonuses Under the Fluctuating Workweek Method [Doc. # 39] is GRANTED and Plaintiffs Cross-Motion for Partial Summary Judgment [Doc. # 42] is DENI ED. It is furtherORDERED that Defendants Motion for Summary Judgment Regarding Whether Its Alleged Violation of the FLSA Was Willful [Doc. # 76] is GRANTED. It is furtherORDERED that Plaintiffs Motion for Conditional Certification [Doc. # 24] is DENIED. It is further( Final Hearing set for 9/13/2012 at 10:00 AM in Courtroom 9F before Judge Nancy F. Atlas)(Signed by Judge Nancy F. Atlas) Parties notified.(sashabranner, )

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
RYAN SWITZER, et al.,
Plaintiffs,

§
§
§
v.
§
§
WACHOVIA CORPORATION, et al., §
Defendants.
§

CIVIL ACTION NO. H-11-1604

MEMORANDUM AND ORDER
This Fair Labor Standards Act (“FLSA”) case is before the Court on
Defendants’ Motion for Partial Summary Judgment on the Validity of NonDiscretionary Bonuses Under the Fluctuating Workweek Method (“Motion”) [Doc.
# 39], to which Plaintiffs filed a Response and Cross-Motion (“Cross-Motion”) [Doc.
# 42]. Defendants filed a Response to Plaintiffs’ Cross-Motion and a Reply in support
of their own Motion [Doc. # 44], and Plaintiffs filed a Reply in support of their CrossMotion [Doc. # 52].
Also pending is Defendants’ Motion for Summary Judgment Regarding
Whether Its Alleged Violation of the FLSA Was Willful (“Willfulness Motion”) [Doc.
# 76], to which Plaintiffs filed a Response [Doc. # 86], and Defendants filed a Reply
[Doc. # 91]. Also pending is Plaintiffs’ Motion for FLSA Conditional Certification
[Doc. # 24], to which Defendants filed a Response [Doc. # 36], and Plaintiffs filed a
Reply [Doc. # 51].
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Having reviewed the full record and relevant legal authorities, the Court grants
Defendants’ Motion, denies Plaintiffs’ Cross-Motion, grants Defendants’ Willfulness
Motion, and denies Plaintiffs’ Motion for Conditional Certification.
I.

BACKGROUND
Plaintiffs worked as Financial Specialists for Wachovia Bank (“Wachovia”).

Wachovia classified Plaintiffs as “nonexempt salaried with overtime,” and paid them
on a fluctuating work week (“FWW”) basis until November 16, 2009. An employer
who satisfies the requirements for a FWW payment method is required to pay only
“half time” for hours worked over 40 in any work week. The FWW method is “used
primarily by employers whose employees may be called upon to work a fluctuating
number of hours each week.” Samson v. Apollo Resources, Inc., 242 F.3d 629, 631
(5th Cir. 2001).
Plaintiffs filed this lawsuit on April 27, 2011, alleging that Wachovia violated
the FLSA because it failed to satisfy the requirements for the FWW payment method.
Plaintiffs allege, inter alia, that Wachovia’s payment of non-discretionary bonuses
precludes Defendants’ use of the FWW method. Plaintiffs allege also that Wachovia’s
violation of the FLSA was willful.1

1

As the Court noted in its Memorandum and Order [Doc. # 62] entered April 12, 2012,
the statute of limitations for Plaintiffs’ FLSA claim has expired as to any additional plaintiffs
absent a finding of willfulness.
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The parties filed cross-motions for summary judgment on the effect of payment
of the non-discretionary bonuses on the validity of the FWW payment method.
Defendants also moved for summary judgment on whether the alleged violation of the
FLSA was willful, and Plaintiffs moved for conditional certification of the lawsuit as
a collective action under the FLSA. The pending motions have been fully briefed and
are ripe for decision.
II.

STANDARD FOR SUMMARY JUDGMENT
Rule 56 of the Federal Rules of Civil Procedure mandates the entry of summary

judgment, after adequate time for discovery and upon motion, against a party who
fails to make a sufficient showing of the existence of an element essential to the
party’s case, and on which that party will bear the burden at trial. Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th
Cir. 1994) (en banc); see also Baton Rouge Oil and Chem. Workers Union v.
ExxonMobil Corp., 289 F.3d 373, 375 (5th Cir. 2002). Summary judgment “should
be rendered if the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a); Celotex,
477 U.S. at 322-23; Weaver v. CCA Indus., Inc., 529 F.3d 335, 339 (5th Cir. 2008).

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On cross-motions for summary judgment, the Court reviews “each party’s
motion independently, viewing the evidence and inferences in the light most favorable
to the nonmoving party.” Jones v. Wells Fargo Bank, 666 F.3d 955, 959 (5th Cir.
2012) (quoting Ford Motor Co. v. Tex. Dep’t. of Transp., 264 F.3d 493, 498 (5th Cir.
2001)). In this case, the parties agree that there are no genuine issues of material fact
regarding Defendants’ use of the FWW payment method. Each party argues that,
based on the undisputed facts, it is entitled to summary judgment as a matter of law.
III.

ANALYSIS
A.

Fluctuating Workweek Method

Although the FLSA generally requires payment of “time-and-one-half” for
hours over forty worked in a week, there are other methods for calculating overtime
that comply with the statute. The payment method at issue in this case is the
Fluctuating Workweek (“FWW”) method. The regulation governing the FWW
method provides that “[a]n employee employed on a salary basis may have hours of
work which fluctuate from week to week and the salary may be paid him pursuant to
an understanding with his employer 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.” 29 C.F.R. § 778.114(a).

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“Under the FWW method, the employee receives a fixed salary as
compensation for all hours worked by the employee, whether above or below forty
hours, as well as an additional overtime premium for each overtime hour.” Samson
v. Apollo Resources, Inc., 242 F.3d 629, 633 (5th Cir. 2001) (citing 29 C.F.R.
§ 778.114(a)). The fixed salary must be such that it provides compensation at a
regular rate that satisfies the minimum wage requirement of 29 U.S.C. § 206(a)(1).
Id. (citing 29 C.F.R. § 778.114(c); Cash v. Conn Appliances, Inc., 2 F. Supp. 2d 884,
893 (E.D. Tex. 1997)). “Section 778.114(a) makes clear that the fixed weekly salary
compensates the employee for all hours worked, including overtime hours. Therefore,
since the employee already receives 100% of his regular rate of pay for each overtime
hour worked, the time and one-half overtime provision of 29 U.S.C. § 207(a)(1)
requires that the employee receive only an additional 50% of his regular rate for each
overtime hour.” Id. at 634 (citing Condo v. Sysco Corp., 1 F.3d 599, 605 (7th Cir.
1993)). The fixed salary is not intended as compensation for forty hours, but for all
hours worked each week. See id. (citing 29 C.F.R. § 778.114(a)).
“An employer may pay an employee pursuant to [the FWW] method where: (1)
the employee’s hours fluctuate from week to week; (2) she receives a fixed weekly
salary, regardless of the number of hours worked that week; (3) the salary is
sufficiently large to assure that no workweek will be worked in which the employee’s

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average hourly earnings from the salary fall below the minimum hourly wage rate; (4)
the employee clearly understands that the salary covers whatever hours the job may
demand in a particular workweek; and (5) the employee receives a 50 percent
overtime premium in addition to the fixed weekly salary for all hours in excess of 40
worked that week.” Conne v. Speedee Cash of Miss., Inc., 246 F. App’x 849, 851 (5th
Cir. July 23, 2007). The employee has the burden of proving that the employer failed
to administer the FWW method correctly. See Samson, 242 F.3d at 636.
B.

Effect of Non-Discretionary Bonuses on FWW Method

Plaintiffs in this case argue that they were not paid a fixed salary because
Defendants paid them non-discretionary bonuses. The bonuses were calculated and
paid based on three components: (1) sales and production growth; (2) portfolio
growth; and (3) customer service.
Regulation Language.– The language of the FWW regulation does not support
Plaintiffs’ position. The fixed salary is a “fixed amount [received by the employee]
as straight time pay for whatever hours [the employee] is called upon to work in a
workweek . . ..” 29 C.F.R. § 778.114(a). It is undisputed that Defendants paid a fixed
amount “as straight time” for the hours each employee worked. In addition to this
fixed amount for hours worked, Defendants paid non-discretionary bonuses as
described above. The regulation does not expressly preclude payment of such

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bonuses. Additionally, had the Department of Labor (“DOL”) intended to exclude
any other payments, it clearly knew how to do so. For example, the DOL regulation
relating to day rates and job rates, like the FWW method regulation, provides for
overtime compensation at half-time pay. The “day rate” regulation provides that the
method of payment applies if the employee is paid a flat sum for a day’s work “and
if he receives no other form of compensation for services.” 29 C.F.R. § 778.112. The
FWW regulation, however, contains no similar provision precluding all other forms
of compensation.
Case Law.– Plaintiffs rely on case law that addresses whether the FWW method
is invalidated by differentials in hourly rate for circumstances such as night work,
holiday work, and off-shore work. These cases, such as O’Brien v. Town of Agawam,
350 F.3d 279, 288 (1st Cir. 2003), involve additional pay that is based on the number
of hours worked.2 In such situations, for example, an employee who worked four
hours on a holiday would receive more additional compensation than an employee
who worked two hours on the holiday. The Court agrees that such additional pay

2

See Brantley v. Inspectorate America Corp., 821 F. Supp. 2d 879, 888-89 (S.D. Tex.
2011) (Gilmore, J.) (differential for hours worked off-shore and on a holiday); Dooley v.
Liberty Mut. Ins. Co., 369 F. Supp. 2d 81, 85-86 (D. Mass. 2005) (differential for hours
worked on a weekend); Brumley v. Camin Cargo Control, Inc., 2010 WL 1644066, **6-7
(D.N.J. Apr. 22, 2010) (differential for hours worked on a day off and on a holiday); Adeva
v. Intertek USA, Inc., 2010 WL 97991, *1 (D.N.J. Jan. 11, 2010) (differential for hours
worked offshore, on a holiday, and on a day off).
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based on the number of hours the employee worked would be inconsistent with the
FWW method.
Defendants’ non-discretionary bonuses, on the other hand, are based on
performance in the areas of sales and production growth, portfolio growth, and
customer service, not on the number of hours worked. For example, an employee who
worked four hours would not necessarily receive more additional compensation (in
the form of a larger bonus) than an employee who worked only two hours. The
employee’s “straight time pay” for work in a workweek was “fixed” and did not vary
with the number of hours worked, notwithstanding the payment of performance-based
bonuses.

Plaintiffs’ cases involving pay differentials are distinguishable and

unpersuasive on the issue of non-discretionary bonuses.3
Plaintiffs rely also on an unpublished case from the Middle District of Florida,
West v. Verizon Services Corp., 2011 WL 208314, *11 (M.D. Fla. Jan. 21, 2011),
which rejected an employer’s claim that it properly utilized the FWW method. In that
case, the plaintiff worked 72 hours per week, every week. The district court, after
considering the facts and the issues presented in that specific case, found (as her most
important consideration) that Plaintiff West’s hourly rate under the FWW method

3

Defendants cite cases involving commissions. See Defendants’ Motion, p. 8, n.10.
While also not directly on point, the commissions are more closely related to the bonuses at
issue in this case because they, like the bonuses, are based on performance criteria unrelated
to the number of hours worked.
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would be less than the applicable minimum wage. See id. As an additional matter,
the West court found that the plaintiff’s hours did not fluctuate since Plaintiff West
always worked 72 hours per week. Id. As a final comment, made with no analysis
or reasoning, the Court stated summarily that the plaintiff’s “salary was not ‘fixed’
because she received various bonus payments and commissions.” Id. The West case
includes no analysis of the bonus issue and, as a result, is not persuasive authority.
The Court agrees with the reasoning and decision of the District of Minnesota
in Soderberg v. Naturescape, Inc., Civil Action No. 10-3429 (D. Minn. Nov. 3,
2011).4 In that case, the district court carefully considered O’Brien and other cases
cited by the plaintiffs. The district court found the cases unpersuasive because, as this
Court noted above, the cases each involved additional compensation tied to the
number of hours worked with a differential based on how or when the hours were
worked.

As in the Minnesota case and in this case, however, the additional

compensation in the form of non-discretionary bonuses is based on criteria unrelated
to the number of hours worked.
DOL Positions.– In 2008, the DOL proposed modifications to the FWW
regulation to clarify that bonus payments would not invalidate the application of the

4

The Court agrees also with the decision of the Western District of Virginia in Black
v. Comdial Corp., 1994 WL 70113, *5 (W.D. Va. Feb. 15, 1994), holding that the payment
of bonuses does not affect the applicability of the FWW method. That case, however, lacks
the clear analysis contained in the Soderberg decision.
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FWW method. See 73 FED. REG. 43662 (July 28, 2008). The DOL explained that the
“payment of additional bonus supplements and premium payments to employees
compensated under the fluctuating workweek method has presented challenges to both
employers and the courts.” See id.
In January 2009, the DOL prepared, but subsequently withdrew, an opinion
letter to be sent in response to employers’ requests for guidance regarding the FWW
method of payment. See Opinion Letter, FLSA 2009-24 (Jan. 16, 2009), attached as
Exhibit D to Motion. In the 2009 letter, the DOL stated that “[r]eceipt of additional
bonus payments does not negate the fact that an employee receives straight-time
compensation through the fixed salary for all hours worked whether few or many,
which is all that is required under § 778.114(a).” See id., p. 3.
In April 2011, well over a year after Defendants stopped paying Plaintiffs under
the FWW method, the DOL issued its final rule “Updating Regulations Issued Under
the Fair Labor Standards Act.” See 76 Fed. Reg. 18,832 (Apr. 5, 2011), attached as
Exhibit 1 to Plaintiffs’ Response. In the final rule, the DOL did not change the FWW
regulation as proposed in 2008. See id. The DOL instead stated in 2011 that bonus
payments “are incompatible with the fluctuating workweek method of computing
overtime under section 778.114.” Id. The DOL acknowledged, however, that its view
at the time of the 2008 proposed revision was to clarify that bonuses were permitted

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under the FWW method and that “the proposed modification clarified the rule and was
consistent with the Supreme Court’s decision in Overnight Transportation Co. v
Missel, 316 U.S. 572 (1942), on which the existing regulation is patterned.” See id.
In the end, the DOL did not alter the FWW regulation.
This record indicates that in 2008 and 2009, the years in issue in this case, the
DOL construed the FWW regulation to permit bonus payments. In 2011, the DOL
shifted course and viewed the award of bonuses to be inconsistent with the FWW
payment method. The language of the regulation remained the same throughout and,
as discussed above, is susceptible to varying reasonable interpretations.

The

regulatory language does not preclude bonus payments that are not based on the
number of hours the employee worked. The DOL’s 2011 pronouncement is contrary
to its publicly-disseminated prior position and the 2011 interpretation was not issued
until well after Defendants were no longer using the FWW payment method for its
Financial Specialists.
Conclusion.– The plain language of the FWW regulation, 29 C.F.R.
§ 778.114(a), leads to the conclusion that the payment of non-discretionary bonuses
prior to November 2009 did not preclude Defendants’ reliance on the FWW payment
method. This conclusion is supported by persuasive case law as discussed above and
by positions taken by the DOL during the relevant time frame. As a result,

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Defendants are entitled to summary judgment that the payment of non-discretionary
bonuses did not preclude use of the FWW method for paying its Financial Specialists
prior to November 2009.
IV.

MOTION FOR SUMMARY JUDGMENT ON WILLFULNESS
The general limitations period under the FLSA is two years unless the violation

was willful, in which case the limitations period is extended to three years. See 29
U.S.C. § 255(a); Nero v. Industrial Molding Corp., 167 F.3d 921, 928 n. 4 (5th Cir.
1999). Under the FLSA, a violation is “willful” if the employer either “knew or
showed reckless disregard for . . . whether its conduct was prohibited by the statute.”
Singer v. City of Waco, Tex., 324 F.3d 813, 821 (5th Cir. 2003) (quoting McLaughlin
v. Richland Shoe Co., 486 U.S. 128, 133 (1988)). “An employer does not willfully
violate the FLSA even if it acts “unreasonably, but not recklessly, in determining its
obligation.” Chicca v. St. Luke’s Episcopal Health Sys., __ F. Supp. 2d ___, 2012 WL
844899, *12 (S.D. Tex. Mar. 12, 2012) (Ellison, J.) (citing McLaughlin, 486 U.S. at
135 n.13). Plaintiffs bear the burden of proving that an FLSA violation was willful.
See Singer, 324 F.3d at 821; Samson, 242 F.3d at 636.
For the reasons discussed fully above, Defendants’ payment of nondiscretionary bonuses did not preclude their reliance on the FWW method and,
therefore, did not violate the FLSA. Absent a violation of the FLSA, there can be no

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willful violation. Defendants are entitled to summary judgment that the payment of
non-discretionary bonuses in connection with the FWW payment method was not a
willful violation of the FLSA.
V.

MOTION FOR CONDITIONAL CERTIFICATION
Plaintiffs moved for conditional certification of this lawsuit as a nationwide

collective action of all Financial Specialists who were paid under the FWW method.
See Reply [Doc. # 51], p. 2. The Court has held herein that the payment of
nondiscretionary performance-based bonuses did not preclude use of the FWW
method and, therefore, there could be no willful violation of the FLSA based on
payment of those bonuses. Absent willfulness, the statute of limitations for Plaintiff’s
FLSA claim expired two years after Defendants stopped paying its Financial
Specialists based on the FWW method. See 29 U.S.C. § 255(a). Defendants’ use of
the FWW payment method ended in November 2009 and, consequently, the statute
of limitations expired in November 2011. A class certified now would be useless, as
the claims of any Financial Specialist who might seek to opt in after November 2011
would be time-barred. As a result, the issue of conditional certification is moot.
VI.

CONCLUSION AND ORDER
The payment of non-discretionary bonuses that are based on performance and

not on the numbers of hours worked does not violate the FWW payment method

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allowed under the FLSA. Because the payment of these bonuses did not violate the
FLSA, there can be no willful violation. Absent a willful violation, the statute of
limitations has expired for any potential plaintiff who has not already joined in this
case. Therefore, the conditional certification issue is moot. Based on the foregoing,
it is hereby
ORDERED that Defendants’ Motion for Partial Summary Judgment on the
Validity of Non-Discretionary Bonuses Under the Fluctuating Workweek Method
[Doc. # 39] is GRANTED and Plaintiffs’ Cross-Motion for Partial Summary
Judgment [Doc. # 42] is DENIED. It is further
ORDERED that Defendants’ Motion for Summary Judgment Regarding
Whether Its Alleged Violation of the FLSA Was Willful [Doc. # 76] is GRANTED.
It is further
ORDERED that Plaintiffs’ Motion for Conditional Certification [Doc. # 24]
is DENIED. It is further
ORDERED that counsel shall appear before the Court on September 13, 2012,
at 10:00 a.m. to discuss the remaining issues in this case.
SIGNED at Houston, Texas, this 24th day of August, 2012.

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