Last Friday, the Fifth Circuit in Black v. SettlePou, PC ruled that the Northern District of Texas erred in applying the Fluctuating Workweek (FWW) method of calculating an overtime payment award where there was no evidence that the employee had agreed to the flexible work hours. The Court of Appeals remanded the case and ordered a recalculation of damages using 1 1/2 times the regular hourly rate of pay instead of 1/2 under the FWW, which would result in a tripling of the actual and liquidated damages.
Black was employed as a legal secretary and paralegal at SettlePou, P.C. from 2005–2010. She was first hired as a non-exempt legal secretary, then promoted to a paralegal, but remained a non-exempt employee, as defined by the Fair Labor Standards Act, 29 U.S.C. §§ 201–19 (FLSA), earning overtime at 1 1/2 regular rate of pay. In 2007, SettlePou informed Black that she was to begin supervising one of their legal secretaries, therefore, she would be reclassified as exempt, making her ineligible for overtime pay as an exempt employee. Immediately following her reclassification Black complained both verbally and in writing to her supervisor and to the human resources department stating that she thought she should be paid overtime for her extra hours worked. After she was terminated in 2010, she filed a suit against SettlePou on behalf of herself and all other similarly situated paralegals for violations of the FLSA.
The jury found that SettlePou had willfully violated the FLSA by misclassifying Black as exempt and the she was owed 274 hours of overtime pay. Apparently, when Black was promoted to a supervisor position, she was told that she would be given supervisory authority, but was never actually given one. Thus, she continued to perform the same duties, but was now ineligible for overtime.
The district judge calculated the amount of overtime premium due to Black by multiplying her 274 overtime hours by one-half of her hourly pay rate. Black filed a motion to alter or amend the judgment, arguing that the district court should have used 1 1/2 times the regular hourly rate of pay instead of 1/2 in its calculation of damages, but the district court denied the motion.
In overruling the district court, the Fifth Circuit explained that “[t]he FWW method of calculating overtime premiums in a misclassification case is appropriate when the employer and the employee have agreed that the employee will be paid a fixed weekly wage to work fluctuating hours,” and that the existence of such agreement is a question of fact. The record evidence in this case – both the parties’ initial understanding and their course of conduct – showed that there was no such agreement between Black and her employer because:
- SettlePou’s Human Resources Director testified that she was unaware of any fluctuating workweek agreement with Black
- Black testified that her understanding was that she would be compensated with a fixed weekly wage for working a regular schedule of 37 1/2 hours
- the payroll records showed that Black was being compensated for full time employment, which was defined in the Employee Handbook as 37 1/2 hours per week
- the Employee Handbook only stated that exempt employees would not be compensated for overtime, but did not explain that the full-time paralegals like Black were expected to work a fluctuating work week or overtime
The critical issue in this case, was “not only whether SettlePou paid Black a fixed salary for varying hours, but whether SettlePou and Black had agreed that a fixed salary would compensate her for all of the hours she worked each week.” The fact that Black complained to the Human Resources Director and her supervisor about having to work overtime without receiving overtime payment, showed that she did not agree to compensation based on the fluctuating work week.
MORAL OF THE STORY: First, make sure your employees are classified correctly as exempt or non-exempt. Second, if you expect employees to work flexible hours, make sure that they are made aware of that, preferably in writing, and that the compensation system reflects this arrangement. It won’t hurt to have employees sign a statement acknowledging that they are expected to work fluctuating hours. Third, make sure that your employee handbooks, employment applications, payroll records, and other paperwork associated with the fluctuating work week positions reflect the specific nature of that arrangement. Finally, make sure that the human resources department is knowledgeable about any fluctuating work week positions.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. His practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.