Hasan v. GPM Invs., LLC

• Decision Date: 27 August 2012
• Docket Number: No. 3:07cv1779 (SRU).,3:07cv1779 (SRU).
• Citation: 896 F.Supp.2d 145
• Parties: Mian and Zahra HASAN, Individually and o/b/o similarly situated Individuals, Plaintiffs, v. GPM INVESTMENTS, LLC, Defendant.
• Court: U.S. District Court — District of Connecticut

896 F.Supp.2d 145

Mian and Zahra HASAN, Individually and o/b/o similarly situated Individuals, Plaintiffs,

v.GPM INVESTMENTS, LLC, Defendant.

No. 3:07cv1779 (SRU).

United States District Court, D. Connecticut.

Aug. 27, 2012.

Kera L. Paoff, Todd D. Steigman, William G. Madsen, Madsen, Prestley & Parenteau, LLC, Hartford, CT, for Plaintiffs.

Ian T. Clarke–Fisher, Stephen W. Aronson, William J. Egan, Robinson & Cole, LLP, Jennifer Hamilton Lewis, McCarter & English LLP, Hartford, CT, Laura Allison Torchio, Robinson & Cole LLP, New York, NY, for Defendant.

RULING AND ORDER ON MOTION IN LIMINE TO PRECLUDE USE OF THE FLUCTUATING WORK WEEK

STEFAN R. UNDERHILL, District Judge.

Plaintiffs, a group of workers, and defendant GPM Investments (“GPM”) dispute how to calculate damages when an employer misclassifies workers as exempt from the protections of labor laws. GPM owns and operates a chain of convenience stores and gas stations along the East Coast. GPM hired plaintiffs to work as “store managers” and paid plaintiffs a fixed salary with no extra compensation for long hours. Plaintiffs filed suit claiming that federal and state laws required GPM to pay them a higher wage for hours worked in excess of 40 hours per week. GPM maintains that those laws do not apply to supervisors like store managers, and, thus, the company had no obligation to pay plaintiffs overtime. The pending motion concerns the proper formula for calculating an award should a jury find in the plaintiffs' favor.

For the reasons set forth below, plaintiffs' motion to preclude use of the fluctuating work week is granted.

DISCUSSIONA. Background: FLSA and Overtime

The Federal Labor Standards Act (“FLSA” or the “Act”) ¹ guarantees workers a minimum wage and limits the hours in a regular work week. Passed in the depths of the Great Depression, the Act was intended to ensure a “fair day's pay for a fair day's work.” Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 578, 62 S.Ct. 1216, 86 L.Ed. 1682 (1942). Under the Act, an employee can only work a maximum of 40 hours in a given week, and if a worker's hours surpass that ceiling, the employer must pay for the additional hours at “a rate not less than one and one-half times the regular rate at which he is employed.” 29 U.S.C. § 207(a). At a time of massive unemployment, this overtime premium applied “financial pressure [on companies so they would] spread employment to avoid the extra wage.” Missel, 316 U.S. at 578, 62 S.Ct. 1216.

The Act uses “hours” as its unit for measuring rates of pay, and this metric creates challenges in two situations. First, the Act's commands are subject to a number of exceptions. Section 13 of the Act removes supervisors, administrative staff, and professionals from the Act's reach. See29 U.S.C. § 213(a)(1). Sometimes employers classify employees as exempt, pay them salaries, and then later learn a particular role did not qualify as an exempt position and workers should have been paid an extra premium for overtime. Such employees, however, have never been paid an hourly wage, and courts are left to reconstruct what their “regular rate” of pay should have been. Second, the Act allows employers to pay staff in any mannerthey wish—for example, by salary, piece rate, or commission. 29 C.F.R. § 778.109. Congress crafted this permissive rule in order to accommodate the “almost infinite variety of employment situations” in a free market economy. 149 Madison Ave. Corp. v. Asselta, 331 U.S. 199, 203–04, 67 S.Ct. 1178, 91 L.Ed. 1432 (1947). But when employers and employees argue over pay, courts must find ways to convert a less common compensation scheme into a standard hourly rate. At issue here is whether this case presents the first problem (reconstructing the appropriate hourly rate absent a violation), the second problem (converting a non-standard payment into an hourly rate), or both.

B. The Fluctuating Work Week

Defendants argue that this is merely an instance of an employer paying an employee something other than an hourly wage, and the challenge is not one of measuring damages, but instead converting an unusual pay scheme into an hourly rate. According to defendants, GPM paid plaintiffs for a “fluctuating work week”—plaintiffs' hours varied from week to week, and rather than submit them to unpredictable paychecks based on hours worked, the company paid them a fixed salary no matter how much time they spent on the job. Thus, plaintiffs' hourly rate of compensation differed week to week; during slow weeks it was high, and during busy times the rate dropped.

The consequence of this distinction—between imputing what an hourly rate should have been, and converting salaries into hourly rates—is enormous. By way of example, suppose an employee makes a weekly salary of 1200 dollars. A court is faced with the task of putting her in the position she might have been in absent a violation. If court divides her salary by the legal limit of 40 hours, it gets a regular rate of 30 dollars per hour. In a week when the employee worked 60 hours, she would receive time and half, or 45 dollars per hour, for that additional 20 hours of overtime. Thus, her total compensation should have totaled 2100 dollars (1200 dollars in base salary plus 900 dollars in overtime).

But what if a court is faced with a fluctuating work week, not a standard overtime violation? In that same 60–hour week, the worker's 1200 dollar salary only compensated her at a rate of 20 dollars an hour, not 30. And, for the additional 20 hours she only wins an overtime supplement of 10 dollars—she has already gotten the base rate of 20 dollars for every hour she worked, including the extra hours, and was only deprived of the slight bump of an unpaid half-time premium. For that week, then, she would only receive two-thirds of the standard calculation or 1400 dollars (1200 dollars in base salary plus 200 dollars in an unpaid overtime premium). This math adds up to a perverse incentive—“the longer the hours the less the rate of pay per hour.” Missel, 316 U.S. at 580, 62 S.Ct. 1216.

C. Missel and the Department of Labor's Guidelines on Fluctuating Work Week Agreements

GPM acknowledges that the fluctuating work week results in lower awards, Def. Opp. at 15, but notes that the Supreme Court has long sanctioned such an arrangement. In Overnight Motor Transp. Co. v. Missel, supra, the Supreme Court allowed a trucking company to pay a fixed salary to a rate clerk who worked varying hours, sometimes clocking long hours logging shipments in busy seasons, and working far fewer hours during lulls. 316 U.S. at 574, 580, 62 S.Ct. 1216. The case presented the Court with a different issue: the employer argued that the FLSA only required that companies pay high enough salaries to cover the statute's minimum wage requirement, and any overtime only had to compensate employees at one and a half times that minimum wage rate. The Court held otherwise; the statute covered all levels of “pay by the week, to be reduced by some method of computation of [an] hourly rate,” and that rate, rather than the minimum wage, should be used to calculate overtime. Id. at 579, 62 S.Ct. 1216. It noted that Missel's contract set “no ... limit upon the hours which petitioner could have required respondent to work for the agreed upon wage ... and [did not include a] provision for additional pay in the event the hours worked required minimum compensation greater than the fixed wage.” Id. at 581, 62 S.Ct. 1216. Thus, the employer could not argue that both parties had understood that the base rate of pay was merely minimum wage, in the words of the Court, “implication cannot mend a contract so deficient in complying with the law.” Id.

The Court then turned to calculating the appropriate rate of compensation. It focused on the facts underlying Missel's contract with Overnight Motor Transport: “Where the employment contract is for a weekly wage with variable or fluctuating hours,” the hourly rate of compensation will rise and fall each week according to the number of hours worked. Id. at 580, 62 S.Ct. 1216. Since the parties agreed to fluctuating rates of compensation, a court should calculate the compensation the week by week, based on a variable rate. Id. at 580, 62 S.Ct. 1216.

Though Missel allows employers to pay employees at fluctuating rates, the opinion provides little guidance about how to distinguish contracts for varying rates of compensation from a standard salaried position. In an attempt to simplify the application of Missel, the Department of Labor (“DOL”) issued “an interpretive rule intended to codify [the decision].” Russell v. Wells Fargo and Co., 672 F.Supp.2d 1008, 1011 (N.D.Cal.2009) (relying on O'Brien v. Town of Agawam, 350 F.3d 279 (1st Cir.2003)). The rule lays out two requirements for contracts with fluctuating compensation rates. First, the employee and employer must have a “clear mutual understanding” that the “fixed salary is compensation (apart from overtime premiums) for the hours worked each work week.” 29 C.F.R. § 778.114(a). In other words, the parties must strike a bargain that includes two terms—as the main clause instructs, that a fixed salary will cover base pay no matter the hours worked, and, as the parenthetical phrase suggests, that employers will cover overtime hours with a separate bonus. The rule goes onto instruct that overtime will fluctuate depending on the total number of hours worked: “Since ... the regular rate of the employee will vary from week to week ... [p]ayment for overtime hours” will also vary. Id.

Second, the employee must receive payment of a contemporaneous premium for overtime hours. According to the rule, employers must include extra pay for overtime in employee's regular paychecks; in the rule's words, “where all the facts indicate that an employee is being paid for his overtime hours at a rate no greater than that which he receives for nonovertime hours, compliance with the Act cannot be rested on...