Employers who rely on the fluctuating workweek method to calculate overtime for employees should take a few minutes to review a new ruling from the Fifth Circuit Court of Appeals that draws some new lines around when the method may be used. Hills v. Entergy Operations, Inc. (5th Cir., Case No. 16-30924, Aug. 4, 2017).

Background

As far as the U.S. Department of Labor is concerned, the “fixed salary for fluctuating workweek,” or just “fluctuating workweek” method of calculating overtime pay has always been something of a disfavored stepchild. That likely has something to do with the fact that, used properly, this calculation can greatly reduce an employer’s overtime liability. For an explanation of how this works, please see our earlier post explaining the concept.

There are some important limitations on when an employer can use the fluctuating workweek method. Those include that the employees’ work hours must actually fluctuate, and there must be a clear, mutual understanding between the employer and employee that their salary is intended to compensate them for any and all hours worked in a given workweek.

Almost twenty years ago, the Fourth Circuit Court of Appeals held in Griffin v. Wake County, 142 F.3d 712 (4th Cir. 1998) that the fluctuating workweek method could be applied to a group of EMTs whose shift schedules alternated in a set pattern between twenty-four and seventy-two hours in a given workweek. The court rejected arguments that the EMTs’ schedules did not truly “fluctuate” because the pattern of alteration was fixed. It further held that the fact that this practice existed for a period of years was enough to establish the required “clear mutual agreement” between the EMTs and their employer.

Fast forward to 2016 and a lawsuit filed against Entergy Operations, Inc. by nineteen current and former “security shift supervisors” who worked at a nuclear power plant operated by Entergy. The plaintiffs were scheduled to work in 12-hour shifts, alternating between three shifts (36 hours) and four shifts (48 hours) per week. The plaintiffs alleged that Entergy misclassified them as exempt, and therefore failed to pay them overtime due under the FLSA when they worked more than 40 hours in a week. Entergy disputed that argument, and also argued that even if they were exempt, the plaintiffs’ overtime pay should be calculated using the fluctuating workweek method. The district court held that the exemption issue could only be resolved with a trial because the material facts were disputed by the parties. However, it granted partial summary judgment in favor of Entergy on the fluctuating workweek question. Following the Fourth Circuit’s approach in Griffin, the district court held that the alternating 36 and 48-hour schedules met the “fluctuating hours” requirement and established that the employees accepted a fluctuating workweek calculation as a matter of law. This ruling in turn led to dismissal of two of the plaintiffs, because use of the fluctuating workweek method reduced those plaintiffs’ potential recovery below zero due to some other offsets claimed by Entergy. Those two plaintiffs then appealed to the Fifth Circuit.

The Fifth Circuit Rejects Griffin and Sends the Case Back for Trial

The Fifth Circuit reversed the judgment, holding that the district court had adopted “too literal a conception of ‘fluctuating’.” While it did not rule out application of the fluctuating workweek method, the Fifth Circuit held that Entergy had to do more than establish that employees were paid a flat salary and that they knew their workweek would fluctuate between 36 and 48 hours each week. Those schedules, the court found, were actually “‘fixed’ in the sense that the parties agreed to it at the outset of their employment relationship,” at least according to the plaintiffs. The court found that such a “biweekly alternating, but fixed, schedule is not necessarily ‘fluctuating’ as that term of art is used in the fluctuating workweek method.”

While the Fifth Circuit overturned the district court’s summary judgment ruling, it did not rule out the prospect that the method might apply. It found that Entergy could still prevail on that argument if the plaintiffs “did indeed agree to have their salaries compensate an unlimited amount of hours each week.” Because the facts on that issue were in dispute, the matter had to be resolved at trial rather than on summary judgment.

Lessons for Employers

Employers, if you want the fluctuating workweek method to apply to any of your employees you must have a clear agreement with those employees that the salary you are paying them is intended to compensate them for all hours worked each workweek, not some fixed or even regularly alternating number of hours.

The only reliable way to prove that you have a specific agreement with an employee is to put that agreement in writing. That might be as simple as inserting some language in your offer letter or your routine communication with employees about salary adjustments. Even a line in an employee handbook would be better than nothing. However you do it, make sure your employee receives the document and that you have some signed acknowledgment proving that they did.

Employers who wish to use the fluctuating workweek method should also avoid unqualified statements about regular schedules, particularly statements that draw a link between the schedule and the employee’s compensation. For example, saying “this salary is based on a 35-hour workweek” strongly suggests that the salary is to compensate the employee only for the first 35 hours of work, and that the employee should receive additional pay for working more than 35 hours.

Finally, keep in mind that these lessons apply not just to salaried non-exempt employees, but also to exempt employees who might pursue misclassification claims. If you are going to pay an employee a fixed salary as their sole compensation for whatever hours they may work, it’s best to tell them that, explicitly and in writing.