When Does the Fluctuating Workweek Apply to Employees?

By Caitlin Reilly

“You agreed to a work schedule that changed depending on the week,” said Elizabeth, payroll manager of a power plant. “If you were misclassified, your unpaid overtime should be calculated using the fluctuating-workweek method.”

“That's not fair. Under that method, we wouldn't get any back wages,” said Ian, a security officer at the plant.

FACTS: Employees who worked as security personnel for a power plant were classified as exempt from overtime requirements under the Fair Labor Standards Act.

The plant ended its contract with the security company and hired several of the contractor's employees to be full-time, in-house “security shift supervisors.” Job offers were contingent on the security staff's classification as exempt from overtime.

The security personnel agreed to a schedule that alternated 36- and 48-hour workweeks.

Sometimes security officers were required to work more than 36 or 48 hours in a week to cover for employees who did not show up for work. Both the employer and the employees acknowledge that this was not explained to the security shift supervisors when they received job offers.

The guards sent a letter to the employer soon after they were hired to complain about the number of hours they were required to work, which exceeded their agreement.

The employer claimed the letter proved the guards understood that schedules would fluctuate beyond the agreed upon shifts. The security officers claimed the letter showed the opposite.

Nineteen of the security-shift supervisors filed a lawsuit claiming they were misclassified as exempt from the FLSA's overtime requirements and were owed back pay.

The employer claimed the workers were FLSA-exempt as administrative employees.

A district court has not yet ruled on whether the security employees were misclassified. However, if the shift supervisors were found to be misclassified, the fluctuating workweek method could be used to calculate employees' regular rates of pay, and by extension unpaid overtime and back wages, the court said. The employer also would be allowed to offset any back wages owed with discretionary bonuses security officers received earlier.

The fluctuating workweek method may be used to calculate the regular rate of pay when the employee is paid a fixed salary, but the number of hours worked varies by week.

Under this method, two of the 19 employees would not receive back pay and the court dismissed them from the lawsuit. The two employees appealed.

ISSUE: Was the district court correct to use the fluctuating workweek method to dismiss two of the guards from the lawsuit?

DECISION: The district court should not have dismissed the guards because whether the fluctuating workweek could be used in this case was unclear, an appeals court said.

For the fluctuating workweek method to apply, employees must agree to a fixed salary that covers weeks that vary in hours, the court said. The employee must understand that the salary covers unlimited hours, it said.

Guards agreed to a schedule that alternated 36- and 48-hour workweeks. Whether the guards understood they would have to cover additional shifts for absent coworkers was disputed, the court said.

Whether the guards clearly understood salaries were intended to cover more than the 36 and 48 hours scheduled in a week would determine the method used to calculate overtime, the court said.

The decision as to what the guards knew and when, and whether the fluctuating workweek applied, would have to be determined with the rest of the lawsuit, the court said. The fluctuating workweek could not be used to dismiss two employees from the lawsuit because the validity of method was unclear, the court said.

The appeals court did not address whether the guards were misclassified ( Hills v. Entergy Operations Inc., 5th Cir., No. 16-30924, 8/4/17 ).

POINTERS: In this decision, the Fifth Circuit disagreed with a 1998 ruling from the Fourth Circuit that addressed the fluctuating workweek method. In the earlier ruling, the court said that the fluctuating workweek could be used for schedules that alternated between a fixed number of hours week to week.

Employers may use the fluctuating workweek method when the employee agrees to a fixed salary that covers the entire workweek, regardless of the number of hours worked. Under the fixed workweek method, a salary is intended to cover only a specified number of hours a week.

The fluctuating workweek salary arrangement may be attractive to employees because pay cannot be docked for lighter workweeks.

To use the fluctuating workweek method, employers find the regular rate of pay by dividing the total earnings for the week by the number of hours worked. The employee's regular rate of pay would vary week to week, depending on the number of hours worked.

For more information see the Payroll Administration Guide's “ Regular Rate Determination ” chapter.

By Caitlin Reilly

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