How To Calculate Unpaid Overtime, The Sequel: Fifth Circuit Rejects FWW Method In Misclassification Cases

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact

In Black v. SettlePou P.C., the Fifth Circuit Court of Appeals overturned a district court’s ruling concerning the proper methodology for calculating damages when an employee is misclassified as exempt. In so doing, the Fifth Circuit departed from what was considered to be settled precedent after its own opinion in Ransom v. Patel Enterprises, Incorporated, decided just 56 days before SettlePou.

Betty Black was a non-exempt paralegal at the Dallas law firm of SettlePou, P.C. In 2007, Black began supervising one of the firm’s legal secretaries and was reclassified as exempt. After Black’s employment was terminated in 2010, she filed a collective action suit alleging SettlePou misclassified her and other similarly situated paralegals as exempt employees and sought damages for unpaid overtime wages.

A jury rendered a verdict in favor of Black, finding SettlePou had willfully violated the Fair Labor Standards Act (FLSA) by misclassifying Black as exempt and that Black was owed overtime compensation for 274 hours of work. Consistent with the Fifth Circuit’s holding in Ransom, the district court applied a fluctuating workweek (FWW) method, calculating the amount of overtime compensation owed to Black by  multiplying her 274 overtime hours by one-half of her hourly rate of $28.89 (as stipulated by the parties at trial) for an actual damages award of $3,957.93. Black appealed, arguing that the district court erred in its calculation of actual damages. The Fifth Circuit agreed.

Citing its opinions in Blackmon v. Brookshire Grocery Company and Ransom, as well as the Supreme Court’s ruling in Overnight Motor Transportation Company v. Missel, the Fifth Circuit reasoned that the FWW method for calculating overtime premiums in a misclassification case is only appropriate when the employer and employee have agreed that the employee will be paid a fixed salary to work fluctuating hours.

Unlike the district court, the Fifth Circuit found that the evidence weighed in favor of a finding that Black’s weekly salary was intended only to compensate her for a standard workweek of 37.5 hours. The court found the fact that Black “immediately and repeatedly” protested her lack of overtime pay to be particularly relevant. The case was reversed and remanded for recalculation consistent with the Fifth Circuit’s opinion.

Key Takeaways

While Ransom provided employers with clarity regarding the calculation of overtime premiums for misclassified employees, SettlePou introduces a new layer of complexity and trepidation to what was once thought to be well-settled precedent. For one, the opinion leaves employers with no clear guidance as to when and under what circumstances the parties’ conduct will suggest that a misclassified employee’s salary was meant to compensate for all hours worked. From a practical standpoint, one would assume that an exempt employee (whether misclassified or not) being paid a fixed salary is being compensated for all work performed regardless of the number of hours worked; however, SettlePou suggests otherwise.

Further, and in addition to this uncertainty, SettlePou leaves employers vulnerable to much larger damages awards. For example, assume an employee prevailing in a suit for misclassification under the FLSA earns a weekly salary of $3,600 per week and proves that he or she actually worked 60 hours per week. Under the FWW method, the multiplier of one-half of the regular pay rate will be multiplied by $30 per hour (which is the employee’s weekly salary divided by the actual hours worked), resulting in an additional $600 in unpaid overtime pay. Under SettlePou, assuming the court found that the weekly salary was intended to compensate for 40 hours per week, the overtime rate would be $45 per hour, resulting in $900 in unpaid overtime. One can easily see that as the number of hours an employee works in excess of the “standard” workweek increases, the overtime rate increases exponentially. If an FLSA action involves hundreds of collective action claimants and two to three years of liability exposure, SettlePou dramatically magnifies an employer’s potential exposure to actual and liquidated damages.

Christopher E. Moore is a shareholder in the New Orleans office of Ogletree Deakins. Lindsey M. Johnson is an attorney in the New Orleans office of Ogletree Deakins.

- See more at: http://blog.ogletreedeakins.com/how-to-calculate-unpaid-overtime-the-sequel-fifth-circuit-rejects-fww-method-in-misclassification-cases/#sthash.ioLHnLSV.dpuf

In Black v. SettlePou P.C., the Fifth Circuit Court of Appeals overturned a district court’s ruling concerning the proper methodology for calculating damages when an employee is misclassified as exempt. In so doing, the Fifth Circuit departed from what was considered to be settled precedent after its own opinion in Ransom v. Patel Enterprises, Incorporated, decided just 56 days before SettlePou.

Betty Black was a non-exempt paralegal at the Dallas law firm of SettlePou, P.C. In 2007, Black began supervising one of the firm’s legal secretaries and was reclassified as exempt. After Black’s employment was terminated in 2010, she filed a collective action suit alleging SettlePou misclassified her and other similarly situated paralegals as exempt employees and sought damages for unpaid overtime wages.

A jury rendered a verdict in favor of Black, finding SettlePou had willfully violated the Fair Labor Standards Act (FLSA) by misclassifying Black as exempt and that Black was owed overtime compensation for 274 hours of work. Consistent with the Fifth Circuit’s holding in Ransom, the district court applied a fluctuating workweek (FWW) method, calculating the amount of overtime compensation owed to Black by  multiplying her 274 overtime hours by one-half of her hourly rate of $28.89 (as stipulated by the parties at trial) for an actual damages award of $3,957.93. Black appealed, arguing that the district court erred in its calculation of actual damages. The Fifth Circuit agreed.

Citing its opinions in Blackmon v. Brookshire Grocery Company and Ransom, as well as the Supreme Court’s ruling in Overnight Motor Transportation Company v. Missel, the Fifth Circuit reasoned that the FWW method for calculating overtime premiums in a misclassification case is only appropriate when the employer and employee have agreed that the employee will be paid a fixed salary to work fluctuating hours.

Unlike the district court, the Fifth Circuit found that the evidence weighed in favor of a finding that Black’s weekly salary was intended only to compensate her for a standard workweek of 37.5 hours. The court found the fact that Black “immediately and repeatedly” protested her lack of overtime pay to be particularly relevant. The case was reversed and remanded for recalculation consistent with the Fifth Circuit’s opinion.

Key Takeaways

While Ransom provided employers with clarity regarding the calculation of overtime premiums for misclassified employees, SettlePou introduces a new layer of complexity and trepidation to what was once thought to be well-settled precedent. For one, the opinion leaves employers with no clear guidance as to when and under what circumstances the parties’ conduct will suggest that a misclassified employee’s salary was meant to compensate for all hours worked. From a practical standpoint, one would assume that an exempt employee (whether misclassified or not) being paid a fixed salary is being compensated for all work performed regardless of the number of hours worked; however, SettlePou suggests otherwise.

Further, and in addition to this uncertainty, SettlePou leaves employers vulnerable to much larger damages awards. For example, assume an employee prevailing in a suit for misclassification under the FLSA earns a weekly salary of $3,600 per week and proves that he or she actually worked 60 hours per week. Under the FWW method, the multiplier of one-half of the regular pay rate will be multiplied by $30 per hour (which is the employee’s weekly salary divided by the actual hours worked), resulting in an additional $600 in unpaid overtime pay. Under SettlePou, assuming the court found that the weekly salary was intended to compensate for 40 hours per week, the overtime rate would be $45 per hour, resulting in $900 in unpaid overtime. One can easily see that as the number of hours an employee works in excess of the “standard” workweek increases, the overtime rate increases exponentially. If an FLSA action involves hundreds of collective action claimants and two to three years of liability exposure, SettlePou dramatically magnifies an employer’s potential exposure to actual and liquidated damages.

Christopher E. Moore is a shareholder in the New Orleans office of Ogletree Deakins. Lindsey M. Johnson is an attorney in the New Orleans office of Ogletree Deakins.

- See more at: http://blog.ogletreedeakins.com/how-to-calculate-unpaid-overtime-the-sequel-fifth-circuit-rejects-fww-method-in-misclassification-cases/#sthash.ioLHnLSV.dpuf

In Black v. SettlePou P.C., the Fifth Circuit Court of Appeals overturned a district court’s ruling concerning the proper methodology for calculating damages when an employee is misclassified as exempt. In so doing, the Fifth Circuit departed from what was considered to be settled precedent after its own opinion in Ransom v. Patel Enterprises, Incorporated, decided just 56 days before SettlePou.

Betty Black was a non-exempt paralegal at the Dallas law firm of SettlePou, P.C. In 2007, Black began supervising one of the firm’s legal secretaries and was reclassified as exempt. After Black’s employment was terminated in 2010, she filed a collective action suit alleging SettlePou misclassified her and other similarly situated paralegals as exempt employees and sought damages for unpaid overtime wages.

A jury rendered a verdict in favor of Black, finding SettlePou had willfully violated the Fair Labor Standards Act (FLSA) by misclassifying Black as exempt and that Black was owed overtime compensation for 274 hours of work. Consistent with the Fifth Circuit’s holding in Ransom, the district court applied a fluctuating workweek (FWW) method, calculating the amount of overtime compensation owed to Black by  multiplying her 274 overtime hours by one-half of her hourly rate of $28.89 (as stipulated by the parties at trial) for an actual damages award of $3,957.93. Black appealed, arguing that the district court erred in its calculation of actual damages. The Fifth Circuit agreed.

Citing its opinions in Blackmon v. Brookshire Grocery Company and Ransom, as well as the Supreme Court’s ruling in Overnight Motor Transportation Company v. Missel, the Fifth Circuit reasoned that the FWW method for calculating overtime premiums in a misclassification case is only appropriate when the employer and employee have agreed that the employee will be paid a fixed salary to work fluctuating hours.

Unlike the district court, the Fifth Circuit found that the evidence weighed in favor of a finding that Black’s weekly salary was intended only to compensate her for a standard workweek of 37.5 hours. The court found the fact that Black “immediately and repeatedly” protested her lack of overtime pay to be particularly relevant. The case was reversed and remanded for recalculation consistent with the Fifth Circuit’s opinion.

Key Takeaways

While Ransom provided employers with clarity regarding the calculation of overtime premiums for misclassified employees, SettlePou introduces a new layer of complexity and trepidation to what was once thought to be well-settled precedent. For one, the opinion leaves employers with no clear guidance as to when and under what circumstances the parties’ conduct will suggest that a misclassified employee’s salary was meant to compensate for all hours worked. From a practical standpoint, one would assume that an exempt employee (whether misclassified or not) being paid a fixed salary is being compensated for all work performed regardless of the number of hours worked; however, SettlePou suggests otherwise.

Further, and in addition to this uncertainty, SettlePou leaves employers vulnerable to much larger damages awards. For example, assume an employee prevailing in a suit for misclassification under the FLSA earns a weekly salary of $3,600 per week and proves that he or she actually worked 60 hours per week. Under the FWW method, the multiplier of one-half of the regular pay rate will be multiplied by $30 per hour (which is the employee’s weekly salary divided by the actual hours worked), resulting in an additional $600 in unpaid overtime pay. Under SettlePou, assuming the court found that the weekly salary was intended to compensate for 40 hours per week, the overtime rate would be $45 per hour, resulting in $900 in unpaid overtime. One can easily see that as the number of hours an employee works in excess of the “standard” workweek increases, the overtime rate increases exponentially. If an FLSA action involves hundreds of collective action claimants and two to three years of liability exposure, SettlePou dramatically magnifies an employer’s potential exposure to actual and liquidated damages.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

Written by:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact
more
less

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.