The Fifth Circuit Giveth and Then Taketh Away: Another Perspective on Fluctuating Workweeks in Overtime Cases

In the course of two months, two separate Fifth Circuit panels have issued decisions that call into question the application of the fluctuating workweek (FWW) method in suits for unpaid overtime based on misclassification.

In Ransom v. M. Patel Enterprises, Incorporated, the Fifth Circuit Court of Appeals approved the use of the FWW formula to calculate overtime for misclassified employees.

In Black v. SettlePou, P.C., the Fifth Circuit disapproved of the use of the FWW formula in an overtime suit filed by a former SettlePou, P.C. employee who claimed she had been misclassified as exempt.  Last week our colleagues covered the intricacies of the Black decision and employers’ increased exposure to liability in “How To Calculate Unpaid Overtime, The Sequel: Fifth Circuit Rejects FWW Method In Misclassification Cases.” In what follows, we will cover the reasons behind the Fifth Circuit’s decision and our tips on how to ensure application of the FWW method of calculating overtime in the future.

Does the weekly salary compensate for a standard or fluctuating workweek?

On appeal, the Fifth Circuit agreed with the jury that the FWW method is the appropriate method for calculating overtime when an employee is paid a weekly wage and is expected to work fluctuating hours. However, the Fifth Circuit rejected the use of the FWW method in Black’s case because the evidence did not show that she and her employer had an  understanding  that her weekly salary was only intended to compensate her for a standard 37.5 hour workweek, and not for any hours over 37.5.

The Black court found that the following factors weighed in favor of a finding of lack of understanding between Black and her employer:

1)      Black, her supervisor, and the company’s human resources (HR) director all testified that a full-time employee’s “regular workweek” was 37.5 hours.

2)      The firm’s HR director testified that she was unaware of any fluctuating workweek agreement with Black.

3)      Black’s payroll records showed that she was being compensated for “full-time employment,” and the firm’s employee handbook defined full-time as any employee regularly scheduled to work 37.5 hours per week.

4)      Black testified that her understanding was that she was to work a regular schedule of 37.5 hours, in contrast with the employees’ testimony in Ransom that they understood that their hours would fluctuate.

5)      When Black found herself working more than the 37.5 hours per week, she complained to her supervisor and to HR: “By immediately and repeatedly voicing her disagreement with her lack of overtime pay after being reclassified as exempt, Black did much, short of quitting her job, to show that she did not agree that her fixed weekly salary was intended to compensate her for all of the hours she worked each week.”

The Black court noted that the understanding required to use the FWW method might be inferred from the parties’ conduct. Black worked fluctuating hours. However, Black’s complaints about being paid a salary indicated that she did not accept a FWW arrangement. What is interesting about this part of the Black case is that the panel allowed Black to cancel the agreement that was implied by her conduct—of working irregular hours.

In a concurrence, Judge Reavley, who was on the panel in Ransom, wrote to “emphasize how unusual this case is.” Reavley emphasized Black’s repeated complaints, the change from non-exempt to exempt, and the parties’ stipulation at trial that the hourly wage was 1/40 of the weekly wage. This, Judge Reavley stated, showed that Black was paid nothing for work past 40 hours.

A Blueprint For Avoiding The FWW Method? Complaints, Conduct, And Handbooks

While affirming Ransom that the FWW method can apply retroactively in a misclassification case, the panel in Black undermines it significantly, providing employees with a blueprint for avoiding the FWW method in misclassification suits. Employees who allege that they repeatedly complained about not receiving overtime may undermine any weight that would otherwise be given their own course of conduct in accepting a salary regardless of the hours they have worked. Moreover, any statements in a handbook regarding a “regular” workweek might be cited to undermine a purported understanding that a salaried employee’s hours fluctuate in any given week even as pay remains constant. At the very least, in light of Black, statements in a handbook or allegations of a complaint by a plaintiff, will make summary judgment on application of FWW much more difficult.

To ensure potential application of the FWW method in the event of a challenge, employers may want to outline the understanding—in handbooks, on applications, or in written agreements—that salaried employees are paid a weekly wage regardless of the fluctuation of the hours that they actually worked.