Breaking News: Texas and 20 States Sue the Department of Labor Over the Overtime Rules

TexasBarToday_TopTen_Badge_VectorGraphicA group of 21 states, including Texas, filed a lawsuit today in the
Eastern District of Texas challenging the U.S. Department of Labor’s new overtime exemption rules that are supposed to go into effect on December 1, 2016, arguing the agency unconstitutionally overstepped its authority to establish a federal minimum salary level for white collar workers.

Back in May, the White House announced that the new overtime rules would go into effect on December 1, 2016.  As I have previously written, the new rules would raise the threshold salary requirements for administrative, professional and executive exemptions from $23,660 to $47,476 annually. They would also raise the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test from $100,000 to $134,004.  Needless to say, many businesses have opposed such a drastic change.  It appears that the states have a problem with it as well.

In the lawsuit, the States argued that they employ many employees who are currently classified as exempt and who would have to be reclassified under the new DOL rules because their salaries do not meet the new DOL salary threshold of $913 per week. Thus, the federal government “could deliberately exhaust State budgets [] through the enforcement of the overtime rules.” 

Raising the question of states rights under the U.S. Constitution, the States argue that the federal government cannot “dragoon and, ultimately, reduce the States to mere vassals of federal prerogative” and that the new overtime rules would do just that by forcing the States to shift resources from other important priorities to increased payroll for certain employees and “effectively impose the [federal government’s] policy wishes on State and local governments.” 

Specifically, the States seek: (1) a declaratory judgment declaring the new overtime rules unlawful and arbitrary and capricious; (2) a temporary injunction preventing the DOL from enforcing or implement the new overtime rules; and (2) a permanent injunction preventing the DOL from enforcing or implement the new overtime rules. 

If the District Court grants the states a temporary injunction prior to December 1, 2016, the DOL might not be allowed to start the enforcement of the new overtime rules on that date.  However, employers should continue to prepare for the new overtime rules as if they are still going into effect on December 1, 2016.  Stay tuned for updates regarding this case . . . 

Leiza is a business and employment litigation attorney in Dallas, Texas. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at or (214) 722-7108.

Breaking News: Millions of Employees Will Be Entitled to Overtime Pay Starting This December

24976165_SAUnder a new rule announced by the White House yesterday, anybody making a salary of less than $47,476 ($913 a week) will automatically qualify for overtime pay when they work more than 40 hours a week.

The current threshold is $23,660 (or $455 a week).

The change will go into effect on December 1, 2016.

The new rule is intended to expand overtime pay for those employees who are paid little but are exempt from overtime because they perform some marginal managerial duties.

In determining whether somebody’s salary meets the new threshold, employers will be allowed to include their bonuses and commissions up to 10% of the threshold amount.

The change is expected to affect the retail and restaurant industries the most, but will affect other industries as well.

TAKEAWAY FOR EMPLOYERS: If you have not already done so, you need to analyze all of your exempt positions and determine how to comply with the new rules by December 1, 2016.

TAKEAWAY FOR EMPLOYEES: The new rules will affect only those salaried workers who make between $23,660 and $47,476, have some managerial duties, and are classified as “exempt” from overtime pay. Under the new rules, such positions will be entitled to overtime pay.  This means that your employer might limit your work hours or lower your hourly pay or make another adjustment by December 1, 2016 to meet the federal requirements.

Leiza Dolghih frequently litigates employment disputes, advises employers on regarding employment issues, and assists with responding to EEOC and DOL charges and investigations. For additional information, contact Leiza at or (214) 722-7108.

Business Owners Alert: State Minimum Wage Increases in 2016

kkWhile the minimum wage in Texas will remain the same in 2016, those Texas companies that have employees in other states, need to be aware of the following minimum wage (and overtime) increases.* Given the recent increase in unpaid overtime lawsuits around the country, companies should be extremely vigilant in ensuring that their employees get paid a proper minimum wage and overtime.

Alaska – Minimum wage increases from $8.75 to $9.75 an hour. Minimum weekly salary for bona fide executive, professional, and administrative employees will increase from $700 to $780 per week (i.e., two times state minimum wage for the first 40 hours of employment).

Arkansas – Minimum wage increases from $7.50 to $8.00 an hour. Minimum wage for tipped employees remains $2.63.

California – Minimum wage increases from $9.00 to $10.00 an hour.  Minimum annual salary for bona fide executive, professional, and administrative employees will increase from $37,440 to $41,600 (i.e., two times state minimum wage for the first 40 hours of employment each week).

Colorado – Minimum wage increases from $8.23 to $8.31 an hour. Minimum wage for tipped employees increases from $5.21 to $5.29 an hour.

Connecticut – Minimum wage increases from $9.15 to $9.60 an hour. Minimum wage for tipped bartenders increases from $7.46 to $7.82 an hour and minimum wage for hotel and restaurant tipped employees other than bartenders increases from $5.78 to $6.07 an hour.

Hawaii – Minimum wage increases from $7.75 to $8.50 an hour. Adjusted minimum wage for tipped employees increases from $7.25 to $7.75 an hour, provided that when tips are added to the wages paid by the employer, the total amount is no less than $15.50 per hour.

Massachusetts – Minimum wage increases from $9.00 to $10.00 an hour. Minimum wage for tipped employees increases from $3.00 to $3.35 an hour.

Michigan – Minimum wage increases from $8.15 to $8.50 an hour. Minimum wage for tipped employees increases from $3.10 to $3.23 an hour.

Nebraska – Minimum wage increases from $8.00 to $9.00 an hour.

New York – Minimum wage increases from $8.75 to $9.00 an hourSubject to caveats outside the hospitality industry, the minimum wage for all tipped employees will increase to $7.50 an hour. The minimum weekly salary for bona fide executive and administrative employees will increase from $656.25 to $675 per week.

Rhode Island – Minimum wage increases from $9.00 to $9.60 an hour. Minimum wage for tipped employees increases from $2.89 to $3.39 an hour.

South Dakota – Minimum wage increases from $8.50 to $8.55 an hour. Minimum wage for tipped employees increases from $4.25 to $4.28 an hour.

Vermont – Minimum wage increases from $9.15 to $9.60 an hour. Minimum wage for tipped employees increases from $4.58 to $4.80 an hour.

West Virginia – Minimum wage increases from $8.00 to $8.75 an hour. Minimum wage for tipped employees increases from $2.40 to $2.62 an hour.

* This is not a complete list of all geographic areas around the country that increased the minimum wage floor in 2016. Please consult with an attorney regarding specific locations outside of Texas where your company has employees to determine whether their compensation complies with all the applicable state and local laws.

Leiza Dolghih represents both COMPANIES and EMPLOYEES in employment litigation and arbitration proceedings.  If you are facing an actual or a potential employment dispute, contact Ms. Dolghih for a confidential consultation at or (214) 722-7108.


Could Your Restaurant Be Violating A Federal Wage Law?

office-space-flairIn the words of the Fifth Circuit Court of Appeals, “this case concerns coffee and tipping.”  More specifically, Montano v. Montrose Restaurant Associates, Inc. concerns a question of whether a restaurant violated Fair Labor Standards Act (FLSA) by requiring waiters to share their tips with the restaurant’s “coffeman.”  The district court dismissed the waiters’ claim, but the Fifth Circuit reversed the ruling and send the case back to the district court to determine whether the coffeman was a “regularly tipped employee.”

If you own a restaurant, or you work in one, you are probably familiar with the practice of pooling tips, i.e. gathering all tips from the shift and splitting them between waiters, busboys, bartenders, etc. Under the FLSA, only those employees who “customarily and regularly receive tips” may be included in the pool in order for an employer to receive a “tip credit” for such employees.   The Department of Labor (“DOL”) has issued several rules and guidance over the years as to which occupations customarily and regularly receive tips and which do not. For example, waiters/waitresses, bellhops, counter personnel who serve customers, busboys/girls (server helpers), and service bartenders are considered tipped occupations, while janitors, dishwashers, chefs or cooks, and laundry room attendants are not.

The DOL also clarified in some of its opinion letters that one’s status as an employee who “customarily and regularly receives tips” is “determined on the basis of his or her activities,” not on the employee’s job title. Thus, while regular chefs are not tipped employees, sushi chefs who work at a counter in the dining room and directly serve customers may participate in tip pools.  Some courts have found that hostesses were tipped employees because they had “more than de minimis interaction with the customers” in an industry in which “undesignated tips are common.” However, salad preparers were not tipped employees because they “abstained from any direct intercourse with diners, worked entirely outside the view of restaurant patrons, and solely performed duties traditionally classified as food preparation or kitchen support work.”

The Fifth Circuit ruled that “in determining whether an employee customarily and regularly receives tips, a court—or a factfinder—must consider the extent of an employee’s customer interaction.”  It explained that the central difference between employees who are traditionally tipped and those who are not is that the former work primarily in the front of the house where they are seen by and interact with customers, while the latter work primarily or exclusively in the back of the house. Applying this logic, it found that the district court erred in failing to consider the extent of the coffeeman’s customer interaction in determining whether he customarily and regularly received tips.

In conclusion, the Court explained that “determining whether an employee is one who “customarily and regularly receives tips” is a fact-intensive inquiry that requires a “case-by-case analysis of the employee’s duties and activities.”

TAKEAWAY:  In recent years, restaurant industry has faced many wage-and-hour lawsuits involving claims for unpaid overtime and failure to pay minimum wage. Restaurants which use tip pools face additional claims related to such pooling arrangements.  The Montano case illustrates that who is a “tipped employee” and who is not for the purpose of a pooling arrangement is a factually intense question, which means that employers should carefully consider whether certain types of their employees belong in a tipping pool and should consult with an attorney before instituting such a system in their establishment.

Leiza Dolghih represents both companies and employees in litigation and arbitration proceedings in state and federal courts.  If you are facing an actual or a potential employment dispute, contact Ms. Dolghih for a confidential consultation at or (214) 722-7108.

Break Time for Nursing Mothers at Work – A Right or a Privilege?

gisele-bundchen_0Many businesses routinely face the question of what to do when a nursing employee asks that she be allowed to take a break to express milk at work and that she be allowed to do so in a private space? Does an employer have to grant her request? What if a business does not have a private place for a mother to use? How many breaks is she allowed to take? For how long? Does an employer have to pay for the break time? This blog post answers these and many other questions that arise from this simple but very common situation and explains why, even when not required to do so under the law, it might be wise for a business owner to permit its female workers to nurse at work. Continue reading “Break Time for Nursing Mothers at Work – A Right or a Privilege?”

In the News: A Dallas strip club is sued by the dancers for failure to pay overtime; ends up settling for $2.3 million.

12.26.2014  The lawsuit alleged that Jaguars, a strip club in Dallas, illegally classified the dancers and “house moms” as independent contractors and failed to pay them overtime.  According to the petition filed with the court, the club hired/fired, issued pay, supervised, directed, disciplined, scheduled and performed all other duties generally associated with that of an employer with regard to the dancers and “house moms.” Additionally, Jaguars instructed the dancers about when, where, and how they were to perform their work; required them to fill out employment applications as a prerequisite to their employment, determined their schedule, and fined any dancers who failed to comply with it.

Jaguars answered that the dancers were independent contractors and not the club’s employees because they leased space from the club to dance as supported by the lease agreements they signed with the club.  After 2 years in court, the club settled the suit with 190+ dancers this week for $2.3 million. Jones, et al. v. JGC Dallas LLC, et al., 3:11-cv-02743 (N.D. Tex.)

Commentary: Lawsuits arising out of employee misclassifications have been skyrocketing over the past few years.  The costs associated with such lawsuits are high since the employer who is found to have misclassified its employees as independent contractors must pay the back overtime wages it owes such independent contractors and the employees’ attorney’s fees, which a lot of times exceed the backpay.  While it is tempting to designate one’s workers as independent contractors to lower labor costs, a single lawsuit brought by a dissatisfied employee may erase or even exceed any savings gained by the misclassification.  When in doubt, an employer should consult with a labor and employment attorney to determine whether certain categories of workers should be classified as employees or independent contractors.

If you are facing a Department of Labor audit or have been sued under the Fair Labor Standards Act for misclassification and need legal assistance, contact Leiza Dolghih at or (214) 939-4458.

Employers Do Not Have to Pay Employees for the Time Spent in a Security Screening After Work, Says the U.S. Supreme Court.

imagesAmazon warehouse employees can’t seem to catch a break. A few years ago, the media was abuzz with the stories about the grueling conditions inside the company’s warehouses. This year, the United States Supreme Court ruled that the warehouse employees are not entitled to overtime pay for the time spent waiting to undergo and going through the required security screenings after the end of their normal work hours.

In Integrity Staffing Solutions, Inc. v. Busk, Integrity Staffing Solutions, Inc. required its hourly warehouse workers, who retrieved products from warehouse shelves and packaged them for delivery to customers, to undergo a security screening before leaving the warehouse each day.

The employees argued that they spent roughly 25 minutes each day waiting to undergo and undergoing the screening that was meant to prevent employee theft and that since such screening was conducted for the sole benefit of the employer and its customers, the employees had to be paid for their time under the Fair Labor Standards Act of 1938 (FLSA).

The employees’ argument was based on the Portal-to-Portal Act (PPA), which provides that employers do not have to pay their employees for (1) “walking, riding, or traveling to and from the actual place of performance of the principal activity or activities which such employee is employed to perform,” and (2) “activities which are preliminary to postliminary to said principal activity or activities.”  The employees argued that the screening time was an integral and indispensable part of their principal activity – retrieval and packaging of Amazon products – and, therefore, was compensable time under the PPA.

The U.S. Supreme Court sided with the employer after finding that the security screening was neither the principal activity for which employees were hired, nor the “integral and indispensable” part of the employees’ duties as warehouse workers. The Court explained that it did not matter whether a particular post- or pre-shift activity was required by an employer, but whether such additional activity was indispensable to the performance of employees’ work.  In this case, the security screening, although required by the employer, was not integral part of the work for which the warehouse employees were hired – packaging of Amazon products. Thus, the employer did not have to pay for such time.

Compensable Pre- and Post-Workshift Activities 

Here are some examples of what pre-shift and post-shift activities the Court has previously held to be compensable because they were indispensable to the main work activities:

  • The time battery-plant employees spent showering and changing clothes because the chemicals in the plant were “toxic to human beings” and the employer conceded that “the clothes-changing and showering activities of the employees [were] indispensable to the performance of their productive work and integrally related thereto.”  Steiner v. Mitchell, 350 U.S. 247, 252-253 (1956).
  • The time the meatpacker employees spent sharpening their knives because dull knives would “slow down production” on the assembly line, “affect the appearance of the meat as well as the quality of the hides,” “cause waste,” and lead to “accidents.” Mitchell v. King Packing Co., 350 U.S. 260, 262 (1956)

Non-Compensable Pre- and Post-Shift Activities 

On the other hand, the Department of Labor regulations explain that the following post- and pre-workshift activities are generally non-compensable:

  • When performed under the conditions normally present, activities including “checking in and out and waiting in line to do so, changing clothes, washing up or showering, and waiting in line to receive pay checks” See 29 CFR Sec 790.7(g) (2013).

Practical Implications 

Those employers who have facilities where employees must pass through gates, security checks, or take other steps before entering or leaving the workplace, should apply the test that the Court formulated in Integrity Staffing Solutions, Inc. v. Busk to any such activities to determine whether they should be compensable or not. If the activity is a “principal” activity or is an “integral and indispensable” part of such “principal activity,” then the employer should pay employees for the time they spend performing such activities. Additional guidance as to what is considered compensable post- and pre-work activity is provided by the Department of Labor here.

For more information regarding compliance with the wage and hour requirements of the Fair Labor Standards Act, contact Leiza Dolghih at

When Can a Franchisor Be Liable for Overtime and Minimum Wage Violations at a Franchisee’s Business?

Earlier this month, the Fifth Circuit Court of Appeals addressed when a franchisor might be liable for its franchisee’s overtime and minimum wage violations as a “joint employer” under the Fair Labor Standards Act (FLSA).  Given the recent rise in the FLSA litigation and rather sizable penalties and damages awards assessed against the violators, Orozco v. Plackis serves as a reminder to franchisors that the more control they retain over their franchisees’ employees the more likely they are to share liability under the FLSA.

In this case, Craig Plackis owned several Craig O’s restaurants around Austin, Texas. In 2005, he entered into a franchise agreement with the Entjers to open a location in San Marcos. In 2011, Ben Orozco, a cook at the San Marcos location, filed a lawsuit against the Entjers and their company alleging that he was not paid overtime or minimum wages as required under the FLSA. After the Entjers settled, Orozco added Craig Plackis as a defendant alleging that the franchisor was also his employer.  The jury agreed with Orozco, but the Fifth Circuit reversed after finding that there was legally insufficient evidence for a reasonable jury to find that Plackis was Orozco’s employer.

Under the FLSA, covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009, and overtime pay at a rate not less than one and one-half times the regular rate of pay for hours worked above 40 hours in a workweek. The FLSA defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. §203(d).

Often, when an employee works for a subsidiary, a franchise, or a professional employer organization (PEO), the question arises which entity is considered the employer for purposes of the FLSA. The courts, therefore, use the “economic reality test” to answer that question.  They look at “whether the alleged employer: (1) possessed the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.” A party need not establish every element in every case, and the dominant theme in the case law is that those who have operating control over employees within companies may be individually liable for the FLSA violations committed by the companies. In joint employer contexts, each employer must meet the economic reality test.

Did the franchisor possess the power to hire and fire employees? 

Orozco testified that the Entjers, and not Plackis, hired him and had the authority to fire him.  He also failed to introduce any evidence showing that Plackis ordered the Entjers to pay Orozco a particular amount or work for a specific number of hours.  Furthermore, Orozco’s attorney admitted during oral argument that there was no direct evidence to support that Plackis had authority to hire or fire Orozco.

Regardless, Orozco argued that the following indirect evidence could have supported the jury’s finding that Plackis was the employer:  (1) several employees worked at both the San Marcos location and the location owned by Plackis; (2) Plackis provided advice to the Entjers regarding how to improve the profitability of the San Marcos location, which resulted in the Entjers adjusting the schedule of their employees.  The Fifth Circuit found such indirect evidence legally insufficient to show “power to hire and fire” on behalf of the franchisor.

Did the franchisor supervise and control employees’ work schedule and conditions? 

Orozco argued that because the Entjers changed their employees’ schedule after a meeting with Plackis, the original franchisor had the authority to supervise or control employees’ work schedule and conditions at the San Marcos location. However, aside from the temporal connection between the meeting and the changes in the schedule, Orozco failed to introduce any other evidence of control.  To the contrary, both the Entjers and Plackis testified that the franchisor’s advice to the franchisee was non-binding, and Orozco himself admitted that Plackis did not set his schedule and never discussed his responsibility or position.

Importantly, the Fifth Circuit explained that the mere fact that the franchisor trained the owners of a particular franchise or reviewed their employees’ schedule in order to increase the franchisee’s profitability, or met with the franchisees and their shift managers frequently, did not mean that the franchisor controlled employees’ work schedule and conditions.

The Fifth Circuit also found that the franchise agreement stating that the Entjers had to follow “policies and procedures promulgated by the franchisor for ‘selection, supervision, or training of personnel,” was insufficient to support a finding that Plackis fired or hired employees or supervised or controlled their work scheduled or employment conditions.

Did the franchisor determine the rate and method of payment? 

Orozco testified that Plackis did not control his rate of pay and the Entjers set his rate and method of payment.

Did the franchisor maintain the employment records? 

Orozco conceded that Plackis did not maintain his employment records.

CONCLUSION:  Things worked out well for the franchisor in this case, but consider the following statement by the Fifth Circuit: “We do not suggest that franchisors can never qualify as the FLSA employer for a franchisee’s employees; rather, we hold that Orozco failed to produced legally sufficient evidence to satisfy the economic reality test and thus failed to prove that Plackis was his employer under the FLSA.”  Had Plackis maintained the employment records for the San Marcos location or directed the Entjers regarding how much they should pay their employees or what work schedule they should implement at their franchise location, the outcome of this case could have been different.

Thus, to avoid a potential exposure under the FLSA as a “joint employer” with its franchisees, a franchisor should make sure that the franchise agreement makes it clear that the franchisees and not the franchisor control the hiring and firing process, employees’ work schedule and conditions, determine the rate and method of payment, and maintain the employment records for their operations. Also, the franchisor should make it absolutely clear that any type of training, advice or guidance that it provides to the franchisees is non-binding and cannot be interpreted as an expression of control over their employees.

For more information regarding minimum and overtime wage requirements, contact Leiza Dolghih.

The Fifth Circuit Allows Class Arbitration Waivers in Employment Agreements

Last week, the Fifth Circuit Court of Appeals joined the Ninth, Second and Eighth Circuits in holding that class arbitration waivers in employment agreements are enforceable, notwithstanding the right of employees to engage in concerted activities under the National Labor Relations Act (NLRA). The ruling has been lauded as an enormous victory for employers, even though the National Labor Relations Board (NLRB) remains free to ignore the opinion and continue to strike down class arbitration waivers.

Under the Mutual Arbitration Agreement (MAA) at issue in D.R. Horton, Inc. v. National Labor Relations Board: (1) employees waived their right to a trial in court; (2) all disputes between D.R. Horton and employees had to be resolved by final and binding arbitration; and (3) the arbitrator did “not have the authority to consolidate the claims of other employees” and did “not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding.” The combined effect of these three provisions was that D.R.Horton’s employees could not pursue class or collective claims in an arbitral or judicial forum. Instead, their only recourse for any employment disputes was individual arbitration.

When a former D. R. Horton’s superintendent and a number of similarly situated employees attempted to initiate a nationwide class arbitration arising out of D.R.Horton’s alleged violations of overtime provisions of the Fair Labor Standards Act (FLSA), the company responded that the MAA prohibited a collective arbitration, but that the employees could proceed with individual proceedings. The superintendent then filed an unfair labor practice charge alleging that the class-action waiver violated the NLRA. The (NLRB) agreed and found that the MAA violated Section 8(a)(1) of the NLRA for two reasons. First, it required employees to waive their right to maintain joint, class, or collective employment related actions in any form. Second, the employees could reasonably interpret the language of the MAA as precluding or restricting their right to file charges with the NLRB. Last week, the Fifth Circuit rejected the Board‘s first reason, but agreed with the second.

It explained that while Section 7 of the NRLA creates a right on behalf of employees to “engage in [ ] concerted activities for the purpose of collective bargaining or other mutual aid or protection,” it does not create a substantive right to use class action procedures. In fact, the U.S. Supreme Court and several Circuit Courts of Appeals have previously recognized that there is no substantive right to class or collective procedures under the Age Discrimination and Employment Act or the FLSA. On the other hand, using Section 7 of the NRLA to invalidate an agreed waiver of a class arbitration would violate the Federal Arbitration Act (FAA), which requires that any arbitration agreement be enforced according to its terms. The Fifth Circuit found that neither NRLA’s legislative history nor its language authorized it to override the FAA. Absent an explicit language of a congressional intent to override the FAA in the NLRA, the Act’s mandate that an arbitration agreement must be enforced according to its terms – here, with a class arbitration waiver – must be followed.

Although the Fifth Circuit found that class arbitration waiver provisions do not violate the NLRA, the MAA in this case contained the following language, which did violate the statute: the employee “knowingly and voluntarily waives the right to file a lawsuit or other civil proceeding relating to Employee’s employment . . . .” (emphasis in original). Because this statement would lead employees to reasonably believe that they were prohibited from filing unfair labor practice charges with the NLRB, the Court of Appeals ordered that D.R. Horton should clarify in the agreement that employees retain access to the NLRB regardless of their agreement to arbitrate disputes.

CONCLUSION: While the Fifth Circuit’s rejection of the NLRB‘s ruling in D.R. Horton is lauded as a victory for employers, it does not guarantee that the NLRB will allow the use of class waivers in mandatory arbitration agreements. The Board regularly treats Circuit Court decisions with which it disagrees as non-binding in any other case. Thus, it may continue to reject such waivers despite the ruling.

Although the battle over class arbitration waivers in employment agreements is far from over, all employers need to review their arbitration agreements and make sure that the language used there does not convey the impression to employees that they are prohibited from filing administrative charges with the NLRB.

For more information regarding the enforcement or drafting of arbitration agreements in Texas, contact Leiza Dolghih.

The Fifth Circuit Triples an Overtime Payment Award; Says the Fluctuating Workweek Method Was Not Warranted in a FLSA Misclassification Case

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 or (214) 722-7108.