In a decision issued on August 16, 2013, the Court of Appeals for the Fifth Circuit, building on its now-venerable ruling in Blackmon v. Brookshire Grocery Co., 835 F.2d 1135 (5th Cir. 1988), reversed a trial court ruling that refused to apply the “half time” measure of damages in an FLSA misclassification case. Ransom v. M. Patel Enters., 2013 U.S. App. LEXIS 17142 (5th Cir. 2013).
In Ransom, a jury found plaintiffs, who were executive managers, were misclassified as exempt from overtime. Although their hours fluctuated greatly week to week, the magistrate judge found their fixed salaries were based on a 55-hour week, making their “regular rate” of pay the weekly salary divided by 55 hours. Inconsistent with this finding, the district court then ruled that the employee had received no pay for hours beyond 40 and thus time and one half was owed for hours in excess of 40. This finding increased the damages several fold.
Citing Blackmon and precedent from other Circuits, the Circuit court reversed, observing that the parties had an understanding that hours would fluctuate not only above 55, but also often considerably below, and the employer should not now be subjected to an additional punitive award under which the employee recovered as though she or he had not been compensated at all for any hours beyond 40. The court accordingly modified the formula for damage calculation to conform to the “fluctuating workweek” regulation—dividing the weekly salary by all hours worked in that week, then awarding 50% of the resulting regular rate for overtime hours. This methodology conforms to that used by other circuits, though some other courts have arrived at this legal conclusion without reliance on the fluctuating workweek regulation. See, e.g., Urnikis-Negro v. Am. Family Prop. Servs., 616 F.3d 665 (7th Cir. 2010).
Misclassification claims from salaried employees – many of whom earn a base salary substantially higher than the $455/week required for exempt status under the FLSA’s white collar exemptions – continue to be a large source of wage-and-hour liability. Employers must shape their communications and policies vis-àvis exempt employees to minimize the likelihood of such a ruling.