The Sixth Circuit recently affirmed a district court’s summary judgment decision finding that an employer, Plastipak Holdings, Inc., Plastipak Packaging, Inc., Plastipak Technologies, LLC, Plastipak, and William C. Young (collectively, “Plastipak”) properly had paid employees using the “fluctuating workweek” method and dismissing plaintiffs’ claims for underpayment of wages under the Fair Labor Standards Act (“FLSA”).

Under the fluctuating workweek, an employee must receive a fixed salary “for whatever hours he is called upon to work in a workweek, whether few or many” as well as “extra compensation” for overtime work. 29 C.F.R. § 778.114(a). As articulated by the Sixth Circuit, the fluctuating workweek method may be used if:

  1. the employee’s hours fluctuate from week to week;
  2. the employee receives a fixed salary that does not vary with the number of hours worked (excluding overtime premiums);
  3. the fixed salary at least equals the minimum wage; and
  4. the employer and employee share a “clear mutual understanding” that the employer will pay the fixed salary regardless of the number of hours worked.

The plaintiffs argued that they had not, in fact, been paid a fixed salary, nor had they come to a mutual understanding with their employer regarding the method by which they would be paid. They also argued that Plastipak’s method of compensating overtime was insufficient.

Plaintiffs argued that the “fixed salary” requirement was not met because, if they worked fewer than forty hours per week, they were “docked” vacation time. The Court found plaintiffs’ argument failed because such “docking” only occurred if plaintiffs actually requested time off from work. The Court found reducing vacation time banks appropriate in such circumstances, and did not dictate against finding that plaintiffs were paid a “fixed salary.”

Plaintiffs raised a related technical argument that they should have been afforded the opportunity to seek additional discovery on what Plastipak would have done if an employee had taken time off, worked fewer than forty hours in one workweek, and the employee did not have vacation time to “dock.” The Court dismissed this argument, finding it had not properly been preserved.

Plaintiffs also argued they never understood that they would be paid using the fluctuating workweek method. The Court quickly dismissed this argument, finding each plaintiff had signed a document acknowledging that Plastipak would use the fluctuating workweek method. And, in fact, that document described the specific formula Plastipak would use to calculate overtime premiums, and provided numerical examples. Further, the plaintiffs had worked under the arrangement for years without complaint.

When plaintiffs alleged that Plastipak’s method of calculating and paying overtime premiums fell short of legal mandates, the Sixth Circuit disagreed. According to the FLSA regulations,

. . . the regular rate of the employee will vary from week to week and is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement.

29 C.F.R. § 778.114(a). The Sixth Circuit explained this calculation translated into the following formula:

(overtime premium = ½ x [salary/(40 hours +overtime hours)] x overtime hours)

Plastipak, instead, used the following formula:

(overtime premium = (salary/40 hours) x overtime hours)

The plaintiffs argued, for hours worked over forty in one workweek, they had been paid—unlawfully—an amount equal to their straight-time compensation (the amount paid per hour up to forty), rather than time-and-one-half. The Court observed that the plaintiffs misunderstood a critical piece of the fluctuating workweek method: it compensates employees for all hours worked in one workweek in the “fixed salary.” Thus, the only amount still due employees after paying that salary is the “one-half” amount of the overtime premium. Because Plastipak had actually paid employees an overtime premium much higher than “one-half” of the regular rate, it had met its FLSA obligations.

The plaintiffs also argued Plastipak had not tracked their hours on a weekly basis, but on a two-week pay period basis. The Court dismissed this argument without consideration, finding that it had not properly been raised in opposition to summary judgment.

This decision reaffirms that employers can compensate employees using the fluctuating workweek. Although there are additional boxes to check to ensure the method is applied properly, it can be done, and when done correctly, it can result in cost savings for employers.