Seventh Circuit Favors Employers By Adopting Fluctuating Workweek To Calculate Overtime In FLSA Misclassification Case

Plaintiffs in misclassification cases were recently dealt a significant blow when the Seventh Circuit approved using the “Fluctuating Workweek” (FWW) method of calculating overtime pay damages where the misclassified salaried employee at issue worked differing amounts of hours in different weeks.  The FWW method allows an employer to pay a non-exempt employee a straight salary regardless of the number of hours worked provided that the employer agrees to pay the employee an additional premium at half the straight time regular hourly rate for each hour worked over 40.  This is obviously a substantial discount from the time and one-half normally required for overtime pay.

Until recently, the FWW was typically applied prospectively, and could be used to award damages only where an employer could show that: 1) it gave the employee notice ahead of time that the employee will be paid in this manner; 2) the employee’s hours really do fluctuate; and 3) the employee was actually paid a premium for at least some overtime hours before the litigation commenced. See December 11, 2009 entry by Fred Plevin and Aaron Buckley.

In Urnikis-Negro v. American Family Property Services, 616 F.3d 665 (7th Cir. 2010), the Seventh Circuit expanded the scope of the FWW by approving its use to award damages retroactively in a misclassification case where not all of the requirements stated above existed.

While agreeing that the FLSA does not contemplate using the FWW as a general remedial measure for calculating damages in misclassification cases, the Seventh Circuit still upheld its use in just such a manner based upon the Supreme Court precedent in Overnight Motor Transp. Co. v. Missel, 316 U.S. 572 (1942).  Specifically, the Seventh Circuit held that although the plaintiff never received any premium pay and no preliminary discussion took place between the plaintiff and the employer as to the applicability of the FWW to the plaintiff’s compensation, the FWW methodology should still be used to calculate damages because the plaintiff’s hours in fact fluctuated each week, and it was clear to the plaintiff at the time she was hired that her hours would likely fluctuate and that “her salary was to cover whatever time she was called upon to work in a given week.”

The significance of this decision cannot be overstated.  Not only does this decision reinforce similar recent rulings by the First, Fifth and Tenth Circuits and other district courts, but also the imposition of the FWW method of calculating damages in Urnikis-Negro means that, for now, in the Seventh Circuit, the damage risk for misclassifying salaried employees whose hours fluctuate week to week has diminished dramatically.  See e.g., Harris v. Seyfarth Shaw LLP, 2010 WL 3701322, at *3 (N.D. Ill. Sept. 9, 2010); see also Ahle v. Veracity Research Co., 2010 WL 3463513, at *19 (D. Minn. Aug. 25, 2010).  In Urnikis-Negro, for example, while still holding the employer liable for wrongly misclassifying the plaintiff as a salaried exempt employee, by using the FWW methodology, the Seventh Circuit agreed to a damage calculation that cut the plaintiff’s damages by over 75 percent from what would have been awarded under the traditional time and one-half method of calculating overtime premiums.

By Jeremy Glenn and Joseph Tilson, Meckler Bulger Tilson Marick & Pearson LLP

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