Federal Court: Employer’s Method of Calculating Overtime Violated Pa. Statute

by Ballard Spahr LLP

A federal district judge in Pennsylvania recently found that RadioShack’s method of computing overtime violates the Pennsylvania Minimum Wage Act (PMWA). In Verderame v. RadioShack Corp., the plaintiff brought a putative class action against RadioShack, alleging that the company’s fluctuating workweek method of calculating overtime did not satisfy the PMWA’s requirement that employees be paid for overtime not less than one and one-half times the employee’s regular rate. This ruling is consistent with two similar Pennsylvania cases decided in recent years and should serve as a reminder to companies doing business in Pennsylvania of the risks of using this method of calculating overtime.

Plaintiff David Verderame, a former store manager classified as non-exempt and paid overtime based on what is commonly referred to as the “fluctuating workweek” method, brought an action arguing that RadioShack had shorted employees on overtime since April 2010. RadioShack’s “Non-Exempt Store Manager Compensation Plan” states that “[o]vertime on the weekly base salary amount will be paid at one-half the calculated regular rate (obtained by dividing the total number of hours worked in the workweek into the weekly base salary amount for all hours worked over forty (40) in any workweek).”

U.S. District Judge Mitchell S. Goldberg’s memorandum opinion began with a discussion of the fluctuating workweek method emanating from the Fair Labor Standards Act (FLSA). He noted that the FLSA prohibits an employer from requiring or allowing an employee to work more than 40 hours per week, unless the employee “receives compensation for his employment in excess of [40 hours] at a rate not less than one and one-half times the regular rate at which he is employed.” Judge Goldberg noted that the U.S. Supreme Court first addressed the overtime calculation when an employee is paid a fixed salary for a job whose hours vary from week-to-week in Overnight Motor Transp. Co. v. Missel.

Judge Goldberg explained that the Supreme Court’s method in Overnight Motor was incorporated in the regulations interpreting the FLSA in 1968. The regulations provide the following example of how to calculate overtime for employees with a fluctuating workweek: An employee who earns a salary of $600 per week and works 50 hours has a “regular rate” of 600/50 or $12 per hour. Overtime is calculated by adding an extra half-time ($6) for each of the 10 hours worked over 40. The total salary would be $660, with the employee being paid at $12 per hour for 40 hours and $18 per hour for 10 hours. Under this method of calculating overtime, an employee’s hourly rate decreases as he or she works more hours.

Judge Goldberg noted that the PMWA is stricter than the FLSA in its overtime requirements. Although the PMWA provides that “[e]mployees shall be paid for overtime not less than one and one-half times the employee’s regular rate as prescribed in regulations promulgated by the secretary,” it does not contain any express language authorizing the use of the fluctuating workweek method of overtime calculation.

In holding that the fluctuating workweek method of overtime calculation is impermissible under the PMWA, Judge Goldberg explained that RadioShack’s compensation plan could not be reconciled with the plain language of 34 Pa. Code § 231.43(d)(3). This section, in relevant part, states that no employer may be found to violate the PMWA’s overtime provisions if, under an agreement between the employer and the employee before performance of work, the amount paid for overtime “[i]s computed at a rate not less than 1½ times the rate established by the agreement or understanding as the basic rate to be used in computer overtime compensation thereunder.”

Additionally, Judge Goldberg distinguished RadioShack’s argument that Section § 231.43(d)(3) allows employers to change the overtime provisions if done so “under an agreement or understanding.” He explained that while this section does allow for an “agreement or understanding” as to the “basic rate,” it does not permit an employer and employee to contract around the requirement that overtime be paid at “1½ times” that rate.

Finally, Judge Goldberg noted that his holding is consistent with the objectives of both the FLSA and the PMWA because the FLSA was designed to “establish a national floor under which wage protections cannot drop, not to establish absolute uniformity in minimum wage and overtime standards nationwide at levels established in the FLSA.”

This decision is consistent with two other federal decisions in Pennsylvania in the last three years, Foster v. Kraft Foods Global, Inc. and Cerutti v. Frito Lay, Inc., which likewise held that the fluctuating workweek method of calculating overtime is unlawful under Pennsylvania law. Although a state court has not yet decided the issue, employers of workers in Pennsylvania should note the risks associated with using a fluctuating workweek method for calculating overtime and should therefore consider revising their policies accordingly.


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.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP

Ballard Spahr LLP 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):

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.


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.