A Wage and Hour Time Bomb: Case Highlights the Scope of FLSA’s “Fluctuating Workweek” Method for Paying Overtime
There are still quite a few unsettled questions regarding the details of how overtime compensation must be calculated and paid to employees under the Fair Labor Standards Act (FLSA). Within these grey areas, collective and class actions thrive. The recently approved multi-million dollar settlement agreement in Acevedo v. BrightView Landscapes, LLC,[1] a hybrid collective/class action covering 27 states, illustrates how compensation plans not specifically endorsed by established case law or the Department of Labor’s (DOL) guidance on overtime compensation can lead to exposure for employers.
One of the key questions in Acevedo was how to apply the fluctuating workweek (FWW) method for overtime compensation, per FLSA regulations. Under the FWW method, non-exempt salaried employees whose working hours fluctuate from week-to-week can be compensated for any overtime worked by only paying one-half of their “regular rate” for that week, subject to a few restrictions. The FWW method is based on a mutual understanding between the company and employee that the employee’s fixed salary is intended to cover any and all hours worked during the week, including overtime hours. If the FWW method applies, the employee will be owed only the additional overtime premium of one-half of their “regular rate” for any hours worked over 40 per week, as opposed to time-and-a-half.
The plaintiffs in Acevedo alleged that the company could not use the FWW method because employees received nondiscretionary bonuses and differing pay rates for certain activities, and were therefore not truly paid a fixed salary. In approving the settlement agreement, the court noted that the plaintiffs’ theory had not yet been addressed by the Supreme Court or the Third Circuit Court of Appeals, but that “[t]he trend appears to be that courts distinguish between performance-based and time-based bonuses with only time-based bonuses violating the ‘fixed salary’ requirement needed to use the FWW method.” [2]. However, the court also recognized that case law on these issues was still developing, and if this case were to proceed, the resolution of these unsettled issues would “naturally make the litigation more complex,” resulting in increased fees and time. In the end, the company opted to forgo this uncertainty and additional expense by paying approximately $4.8 million to settle the claims.
Although it is difficult to avoid overtime litigation altogether, employers can reduce the risks associated with such litigation. While some employers prefer to pay non-exempt employees a flat salary instead of hourly, the Acevedo case highlights one potential risk of this approach. Employers should also consider periodic internal audits of FLSA exemption classifications and payment methods, with the assistance of counsel where appropriate. These proactive steps can help employers comply with the FLSA and other wage and hour laws, as those laws continue to be interpreted by the courts and the DOL.
[1] No. 3:13-cv-2529, 2017 U.S. Dist. LEXIS 163870, 2017 WL 4354809 (M.D. Pa. Oct. 2, 2017)
[2] Id., 2017 U.S. Dist. LEXIS 163870 at *30
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