Supreme Court of Pennsylvania Rejects Use of Fluctuating Workweek Method for Overtime Payment Calculation

In late 2019, Pennsylvania defected from the traditional use of the fluctuating workweek method used to calculate overtime rates for employees working fluctuating hours. Instead, in Chevalier v. General Nutrition Centers, Inc., the Supreme Court of Pennsylvania determined that the Pennsylvania Minimum Wage Act (PMWA) does not allow the fluctuating workweek method (FWW Method) of calculating overtime compensation to be used for salaried employees working fluctuating hours. In light of this decision, employers in Pennsylvania may want to review and, if necessary, revise their pay practices in order to confirm they are in compliance with this new ruling.

Background

“Under the FWW Method, the salaried employee’s ‘regular rate’ of pay is determined by dividing the total of the weekly salary by the number of hours actually worked that week . . . . The employer then accounts for the overtime requirement of an additional ‘one-half times the regular rate’ by multiplying the number of hours in excess of forty by 0.5 times the regular rate . . . the ‘0.5 Multiplier.’” Contrary to the Fair Labor Standards Act (FLSA) and related regulations, which explicitly permit employers to use the FWW Method to compensate employees working fluctuating hours, the PMWA and related regulations do not specifically address a method for calculating overtime for employees working fluctuating hours. As a result, employers in Pennsylvania had been left without clear guidance on the proper method for calculating overtime for employees working fluctuating hours.

With this gap in guidance in Pennsylvania, Plaintiff Tawny L. Chevalier, a former GNC store manager, filed a class action complaint against General Nutrition Centers, Inc., and General Nutrition Corporation (collectively GNC), on behalf of herself and all others similarly situated. The plaintiffs, who worked fluctuating workweeks and who were paid in accordance with the FLSA under the FWW Method, alleged that GNC had violated “the PMWA’s requirement that employees ‘shall be paid for overtime not less than one and one-half times the employe[e]’s regular rate’” when it calculated their pay using the FWW Method.

More specifically, the “Plaintiffs assert[ed]” that instead of using the 0.5 Multiplier provided for by the FWW Method, the PMWA provides “that overtime compensation should be calculated by multiplying the number of hours worked in excess of forty by 1.5 times the regular rate . . . the ‘1.5 Multiplier.’”

In response to the plaintiffs’ claims, GNC argued “that the FWW Method is permissible under the PMWA . . . and that Plaintiffs’ calculation of overtime pay would override the clear statutory mandate of ‘one and one-half times the regular rate.’” In support of this argument, GNC posited “that the FLSA should be used as a guide for interpreting the PMWA, given that the PMWA adopted substantial aspects from its federal counterpart. It contended that if the General Assembly had intended to deviate from the FLSA it would have done so explicitly” and “that Pennsylvania’s ‘silence on this issue should be interpreted as acceptance of the FWW Method, rather than a repudiation of it.’”

The plaintiffs rejected the notion that the PMWA is a mirror image of the FLSA and that acceptance of the FWW Method in the federal statutes and regulations should also apply to the state provisions. Specifically, “Plaintiffs maintain[ed] that the PMWA and [accompanying regulations] selectively adopted aspects of the federal provisions with the intent to provide greater protections for Pennsylvania’s workers and did not embrace” the FWW Method. “Plaintiffs emphasize[d] that, unlike the FLSA, the PMWA authorizes the [Pennsylvania] Secretary [of Labor and Industry] to promulgate regulations addressing overtime compensation . . . They view this distinction as indicative of a need for affirmative action by the Secretary rather than allowing for adoption of the FLSA provisions by implication.”

The Supreme Court of Pennsylvania’s Decision

Faced with the parties’ competing positions, the Supreme Court of Pennsylvania found in favor of the plaintiffs, finding that the FWW Method was not permissible under the PMWA. In doing so, the court explained “that the answer depends on the interpretation of the following language in the PMWA: ‘Employe[e]s shall be paid for overtime not less than one and one-half times the employe[e]’s regular rate as prescribed in regulations promulgated by the secretary.’” In order to do so, two issues need to be clarified: (1) “how to calculate the regular rate” and (2) “whether to multiply that rate by 0.5 or 1.5 in order to achieve the one and one-half times the regular rate required by the statute.”

With respect to calculating the regular rate, the parties agreed that the regular rate should be calculated by using the actual hours worked. Next, the court found that, “when mechanically applied,” the language of the regulation that “each employee shall be paid for overtime not less than 1-1/2 times the employee’s regular rate of pay for all hours in excess of 40 hours in a workweek . . . comports with Plaintiffs’ analysis as it requires ‘all hours in excess of 40’ to be paid at 1.5 times the regular rate, regardless of whether the regular rate was calculated based upon the actual hours worked. Considering this application in light of the unmistakable intent of the General Assembly to use the Commonwealth’s police power to increase wages to combat the ‘evils of unreasonable and unfair wages,’ [the court] conclude[d] that the rules of statutory construction favor Plaintiffs’ interpretation requiring application of the 1.5 Multiplier.”

Therefore, under this ruling, while Pennsylvania employers may calculate a salaried, nonexempt employee’s “regular rate” in the same manner as they would under the FWW Method, the PMWA requires payment of 1.5 times that rate for each overtime hour, not 0.5 times that rate.

Now that the Supreme Court of Pennsylvania has provided concrete guidance on the proper method for calculating overtime for employees working fluctuating hours, employers in Pennsylvania will want to review their pay practices in order to confirm they are in compliance with the PMWA’s requirement to pay 1.5 times the regular rate for each overtime hour.