RadioShack’s calculation of overtime for certain employees violates Pennsylvania law, a federal judge has ruled in an opinion that adds to a recent series of decisions establishing the direction of overtime law as moving in workers’ favor.
The system RadioShack used to determine the amount of overtime pay due to salaried employees was the fluctuating workweek method, which grew out of the federal Fair Labor Standards Act and offers a way to calculate overtime pay to workers who aren’t paid hourly.
“While this method of compensation may be lawful under the baseline federal regulation, the same cannot be said as it applies to the more employee-friendly Pennsylvania regulation,” said U.S. District Judge Mitchell Goldberg of the Eastern District of Pennsylvania.
RadioShack, which has hundreds of employees across the state, applies the fluctuating workweek method to calculate the amount owed to the more than 100 of them who are paid a salary and qualify for overtime pay.
It is easy to apply the FLSA’s requirement that workers who put in more than 40 hours a week are to be paid at least time-and-a-half for the overage time when they are paid at an hourly rate. It gets harder when they are paid a salary.
The U.S. Supreme Court confronted this issue in 1942 when it decided Overnight Motor Transportation v. Missel. There, the high court established the fluctuating workweek standard, which divides the total number of hours put in by an employee in a given week by his weekly salary to determine his hourly pay.
“Although the court recognized that this would produce a different ‘regular rate’ for each week, and would result in the rate decreasing with each additional overtime hour, it concluded that this was the nature of a salaried position,” Goldberg explained.
That method was incorporated into the federal FLSA in 1968.
So, the judge explained, a worker making $600 per week who puts in 50 hours would be making $12 per hour. He would be paid $12 per hour for the first 40 hours and then time-and-a-half, or $18, for the last 10 hours, which would give him a paycheck for $660.
However, the Pennsylvania Minimum Wage Act requires a different calculation, Goldberg said.
The state wage law requires employers to pay salaried workers at least one-and-a-half times their regular hourly rate for overtime work.
Applying that calculation to the $600, 50-hour workweek example, Goldberg explained that the employee would be paid at a rate of $12 per hour for 50 hours for a total of $600, then the hourly rate would be multiplied by one-and-a-half, or $18, which is to be paid as a premium for every hour worked beyond the first 40. The total would be $780.
“RadioShack disagrees with this calculation method, urging that the language of Section 231.43(d)(3) is mathematically vague, and therefore subject to multiple interpretations,” Goldberg said.
He wasn’t persuaded.
Instead, he agreed with the outcome of two similar cases from the Western District of Pennsylvania—Foster v. Kraft Foods Global, decided in 2012, and Cerutti v. Frito Lay, decided in 2011.
“Both held that the fluctuating workweek method of overtime calculation is impermissible under the PMWA,” Goldberg said.
The U.S. Court of Appeals for the Third Circuit hasn’t weighed in on the issue, but the “law is becoming settled just based upon trial court decisions,” said Peter Winebrake of Winebrake & Santillo, who represented the plaintiff, David Verderame. The case is brought as a putative class action.
These types of cases, over the fluctuating workweek model, are important beyond their immediate impact, Winebrake explained. The pool of cases over the method itself is small. Much more often than using the method to calculate overtime pay for salaried workers, companies misclassify workers as being salaried and ineligible for overtime pay, which sparks a far larger pool of cases.
There are “way more misclassification lawsuits than RadioShack lawsuits,” Winebrake said.
But, a case like this one, where the judge decides that the fluctuating workweek method isn’t an option in Pennsylvania, “makes a humongous difference” for the way that the damages will be calculated when plaintiffs win misclassification lawsuits since the damages will have to be based on the PMWA model.
Daniel Huyett of Stevens & Lee represented RadioShack and couldn’t be reached for comment.
(Copies of the 12-page opinion in Verderame v. RadioShack, PICS No. 14-1087, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •