In this week's Alabama Law Weekly Update, we review a decision from the United States Court of Appeals for the Eleventh Circuit in addition to a decision from the Unites States District Court for the Northern District of Alabama. The first addresses how a “fluctuating workweek” affects the Fair Labor Standards Act's (“FLSA”) overtime calculation, and the second discusses whether a retailer's data breach is an insured loss.

Garcia v. Yachting Promotions, Inc., Case No. 16-10095, 2016 WL 6276046, at *1 (11th Cir. Oct. 27, 2016) (Employee failed to show that he misunderstood the fluctuating workweek method utilized by his employer).

Mr. Garcia was compensated based on the fluctuating workweek method. The fluctuating workweek compensates employees based on a fixed salary regardless of the number of hours worked in a given week. The fluctuating workweek is acceptable under FLSA to compensate employees whose hours fluctuate, but it is not an exception to overtime pay requirements.

To be eligible for the fluctuating workweek the employer must—among other requirements—ensure that its employees understand the fluctuating method pays a fixed salary for all hours they work in a given week. Mr. Garcia sued his employer claiming his language barrier made him misunderstand the employee agreement he signed, and the employer was unclear in communications about the fluctuating workweek method. He argued this rendered the fluctuating workweek inapplicable to him, so the employer owed him one and one-half time rate for overtime previously worked. The district court granted summary judgement in favor of the employer.

On appeal, the United States Court of Appeals for the Eleventh Circuit agreed with the district court that Mr. Garcia demonstrated an understanding of the fluctuating workweek. While there must be a “clear mutual understanding,” the employer is under no obligation to ensure that the employee understands “every contour” of the fluctuating workweek method, so long as it is clear the fixed salary does not change based on the number of hours worked each week. The appeals court held that the terms of the signed employment agreement in addition to Mr. Garcia's deposition testimony and actions implied that he understood that the fluctuating workweek applied to him and that his fixed salary did not change due to the number of hours worked each week.

Camp's Grocery, Inc. v. State Farm Fire & Casualty Co., Case No. 4:16-cv-0204-JEO, 2016 WL 6217161, at *1 (N.D. Ala. Oct. 25, 2016) (Retail data breach held not an insured loss).

A retail grocer experienced a data breach of its computer network, compromising credit card information stored on the system. Multiple credit unions sued the company alleging its inadequate computer systems and training caused damage to their cardholder accounts. The company filed this case after its insurer declined to defend or indemnify the lawsuit brought by the credit unions.

In denying the relief requested by the retailer, the trial court determined that the insurance policy's coverage of data was limited to “direct losses” according to the policy endorsements relating to computer property. The court reasoned that these endorsements insured “direct losses” for first-party coverage sustained by the retailer directly. The endorsement, though, imposed no duty to defend or indemnify the company against a lawsuit for losses suffered by third-parties, such as the credit unions.

The court also rejected the retailer's argument that the general commercial liability policy required that the insurer provide a defense. The court reasoned that the liability policy, which stated “may elect to defend,” made the provision of a defense optional rather than mandatory. The court also found that the liability policy was limited to coverage of a third-party's tangible property damage. The credit unions' lawsuit alleged damage to its cardholder accounts because of compromised intangible electronic data. The court determined that the economic loss of having to replace the cards was an intangible injury which was not “property damage” and not covered. The court refused to “piece-meal” provisions from the liability policy and computer property endorsement in order to find coverage existed.