In Mian v. GPM Invs., LLC, 2012 U.S. Dist. LEXIS 121048 (D. Conn. 2012), a federal court in found in favor of a group of workers and against the company over the issue of how to calculate the overtime damages owed to workers who are misclassified as exempt under overtime laws. The employer sought to rely on the so-called “fluctuating workweek” (FWW) method of calculating damages which allows employers to calculate overtime based on the fixed salary paid each week. As a result of this method, the more hours of overtime one works, the lower the rate of pay they receive. In effect, the FWW method gets employers off the hook for violations of the overtime laws because it divides the total hours worked each week by the weekly salary paid. This results in far lower overtime awards for employees. In order to rely on the FWW method, however, employers are supposed to be required to establish 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). As the Connecticut judge stated:
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.
In addition, in order for the FWW method to be used, an 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 regular paychecks…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 court found that in cases where an employer misclassifies employees, the above requirements are never met and an employer cannot rely on the FWW method. The court stated:
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. 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.
This case is a good victory for misclassified salaried employees who are owed overtime wages.
