Pepsi  sued for paying Chinese Overtime to its workers. 

Pepsi  Beverages Company has recently joined a long list of employers who are being sued for paying what some employee’s refer to as “Chinese Overtime.”  Yes, it’s not the best name for it.  The proper name is Fluctuating Work Week overtime.  Some refer to it as “half time” overtime.  Whatever you call it, employee’s don’t like it and there are lawsuits all over the country challenging its use.

Usually, employers pay an hourly wage to their non-exempt workers and then pay one and one half that wage when they work overtime.  For example, if someone makes $20 per hour, they get $30 per hour for overtime.

Well, in an ongoing effort by employers to save every nickel they can, they are now paying overtime pursuant to a rare and, many say unfair method.

They pay a salary to their employees, then, when they work say 50 hours, they divide that salary by 50 (not 40) to determine the hourly rate.  They then pay ½ that rate for the overtime.  For someone earning $800 per week, this means getting $80 for ten hours of overtime instead of $300.

Unfortunately, the U.S. Department of Labor allows this payment scheme but only in certain circumstances.  Employees and their lawyers around the country are attacking this rule whenever they find a way.

The latest employer to use this method is Pepsi.  Stephen Boyd has filed a lawsuit in the federal court in Massachusetts claiming that Pepsi is not following all the rules and therefore should not be allowed to pay ½ overtime.  His lawsuit explains it all.

While the claims arise out of a collective bargaining agreement of a local union, it could be that Pepsi pays all of its BCRs this way.  If so, BCRs from around the country might be able to join.  

Pepsi sued for paying Chinese Overtime to its BCRs.

Pepsi  Beverages Company has recently joined a long list of employers who are being sued for paying what some employee’s refer to as “Chinese Overtime.”  Yes, it’s not the best name for it.  The proper name is Fluctuating Work Week overtime.  Some refer to it as “half time” overtime.  Whatever you call it, employee’s don’t like it and there are lawsuits all over the country challenging its use.

Usually, employers pay an hourly wage to their non-exempt workers and then pay one and one half that wage when they work overtime.  For example, if someone makes $20 per hour, they get $30 per hour for overtime.

Well, in an ongoing effort by employers to save every nickel they can, they are now paying overtime pursuant to a rare and, many say unfair method.

They pay a salary to their employees, then, when they work say 50 hours, they divide that salary by 50 (not 40) to determine the hourly rate.  They then pay ½ that rate for the overtime.  For someone earning $800 per week, this means getting $80 for ten hours of overtime instead of $300.

Unfortunately, the U.S. Department of Labor allows this payment scheme but only in certain circumstances.  Employees and their lawyers around the country are attacking this rule whenever they find a way.

The latest employer to use this method is Pepsi.  Stephen Boyd, a BCR, or Bulk Customer Representative, has filed a lawsuit in the federal court in Massachusetts claiming that Pepsi is not following all the rules and therefore should not be allowed to pay ½ overtime.  His lawsuit claims unpaid overtime wages for himself and other BCRs.

While the claims arise out of a collective bargaining agreement of a local union, it could be that Pepsi pays all of its BCRs this way.  If so, BCRs from around the country might be able to join.  

Office Depot’s Overtime Scheme violates Federal Law!

A federal judge in New Jersey recently ruled that Office Depot’s overtime scheme, modeled after the federal “fluctuating work week” method of overtime pay, violates the federal Fair Labor Standards Act.  I know, you are probably saying, “what does that mean?”  Let me explain.

As most of you know, we have had a law in this country since 1938 that requires overtime pay at “one and a half times the regular rate” to be paid to workers who work more than 40 hours in a week.  Usually, employers assign these “non-exempt” workers a regular hourly rate of pay (say $10 per hour) and then pay them time and a half ($15) for all hours worked beyond 40 in a week.

Few people realize that there is an alternative method of calculating overtime pay called the Fluctuating Work Week method.  It derives from a 1942 U.S. Supreme Court case called Missel.  Some people call it the “half time” overtime method.  Still others call it “Chinese Overtime.” (although I have no idea why).  Here is how it works.

First, the employees have to be paid a fixed weekly salary, say $800 per week.  This salary must be paid even if the employee works less than 40 hours.  So, if the  employee works only 30, she still gets her $800.

Next, when the employee works more than 40, say 50, overtime is calculated by dividing $800 by 50 ($16), then paying hours 41-50 at one and a half times $16 or $24.  Well, since this employee already got $16 for hours 41-50, she is only due another $8 for those hours or an $80 premium.   She will get $880 instead of $1,100 (the amount she’d be paid if her hourly rate was $20).

There are obvious pitfalls to this method for employees.  The most obvious is that if the employee never or rarely works less than 40, she will not receive the benefit of this scheme and only suffer its downside – half time overtime.  Because of this, most employers who use this scheme neglect to tell their employees that they will get their full pay if they work fewer than 40 hours.

The fixed weekly salary component is not only violated if the weekly pay is too little, it is also violated if it is too much.  If an employer pays $850 for our employees work during a holiday week, they’ve paid too much and the weekly salary won’t be “fixed” for FWW purposes.

Judges in Connecticut have been reluctant to allow employers to use this calculation when they mis-classify an employee as exempt.  See Dan Schwartz blog post on this issue.

A federal judge in New Jersey ruled on February 22, 2013 that Office Depot’s overtime scheme, which it was using for its Assistant Managers, violates the Fluctuating Work Week. In that case, Office Depot’s pay scheme paid Holiday pay on national holidays.  The case is called Gibbons v. Office Depot, Inc. and Gibbons is represented by Seth Lesser from New York.

The problem was that if the Assistant Manager worked 40, she got 8 hours of holiday pay for a total of 48.  If she worked 35, she’d be paid 43 (with the 8 hours of Holiday Pay).  If she worked 31, she still get 40 salary, but no holiday pay.

These fluctuations in salary defeated Office Depot’s claim that it paid a “fixed weekly salary.”  The citation is 2013 U.S. Dist. LEXIS 25169.

Another component of the FWW is that the employer must show that its employees had a “clear mutual understanding” of the way overtime would be paid.  The fact that it did not explain this holiday pay system in writing defeated this requirement.

The take away is that the FWW is a strictly construed exception to the normal “hourly” way of paying workers and that courts hold employers’ feet to the fire when employees challenge it. There is already a case pending in Connecticut for assistant managers at Save a Lot Food Stores challenging a similar practice.  If you are an assistant manager paid on this FWW or “coefficient overtime” scheme, you could have a claim.  If you are an attorney litigating this issue, this ruling can help you.  Good luck.

Connecticut Federal Judge Rejects “Chinese Overtime”

Yes, I know, it is a racist term, but it isn’t mine.  Some courts and some companies actually use this terminology.  I am confident that this is not the way that the Chinese pay their employees overtime pay.  I really do not know the genesis of this phrase.

With that behind us, the news is that Judge Janet C. Hall of the District of Connecticut issued a ruling on September 27, 2011 in the case of Perkins v. SNET rejected SNET’s argument that any damages in this overtime misclassification case should be calculated on the basis of the Fluctuating Work Week method of overtime calculation.

If you’ve never heard of it, this overtime pay scheme allows employers to pay half time, rather than time and a half for their non-exempt employees.  There is a very old (1942) U.S. Supreme Court case on this topic called Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942).  There is also a federal regulation.  C.F.R. Section 778.114.  These rules allow employers to pay their non-exempt employees overtime at this reduced rate as long as they do not dock their salary when they work less than 40 hours.  In other words, employers cannot have their cake and eat it, too.

The tricky part comes when employers have classified a group of employees as exempt from overtime, they are sued and lose, and now we have to figure out what the class of misclassified employees are owed.  Plaintiffs attorneys want to divide the weekly salary by 40 to come up with an hourly rate and pay that rate times 1.5.  ($800 weekly salary / 40 = $20 x 1.5 = $30 overtime rate). If the worker puts in 50 hours, they claim $300 for their 10 overtime hours.

Clever defense attorneys want to divide the salary by the total number of hours worked in the week, including overtime hours, lets say 50.  $800 / 50 = $16.  $16 x 1.5 = $24.  Since they claim to have already paid $16 for the 10 overtime hours, they claim that all they owe is $8 x 10 hours or $80. 

In Perkins, SNET filed a motion in limine seeking a ruling that if they lose, they only owe overtime at the half time rate, not the time and a half rate discussed above.  In the above example, it is a difference of $220 per week per person.  Lots of money on the line.

Judge Hall rejected this argument and granted Plaintiff’s motion in limine, ruling that the time and a half method was applicable.  Her ruling (it is not yet published but can be found on Pacer.  It is civil action 3:07 CV 967 (JCH))contains a detailed and thoughtful analysis of the relevant statute, regulations, cases and DOL opinion letters.  It is must reading for any Connecticut wage / hour practitioner. 

In the end, my favorite part of her ruling was her footnote 5:

“In addition, the court agrees that assessing damages using the fluctuating workweek method provides a perverse incentive to employers to misclassify workers as exempt, and a windfall in damages to an employer who has been found liable for misclassifying employers under the FLSA. (citations omitted).”

This ruling should provide powerful precedent going forward to other plaintiffs or groups of plaintiffs seeking to be compensated for unpaid overtime wages. 
Congratulations to counsel for the plaintiffs, Sanford, Wittels & Heisler, LLP-NY.

 

Connecticut Supreme Court may consider “fluctuating work week” case

The Connecticut Supreme Court has before it an important case which will affect the way back-pay awards are fashioned in overtime cases brought under the Connecticut Minimum Wage Act (C.G.S. Section 31-58, et seq.).  In Stokes v. Norwich Taxi, the plaintiff made a claim for unpaid overtime wages.  He had been put on a salary and not paid any extra compensation for work in excess of forty hours in a week.  He claimed that he should have been classified as non-exempt and paid time and a half for his overtime work.  His employer claimed, among other things, that the calculation of his overtime premiums should not be time and a half, but instead that it should be based on the fluctuating work week  method of overtime calculation found in the Code of Federal Regulations.  This method calculates the regular rate of pay by dividing the weekly salary by the total number of hours worked rather than by forty.  Employees paid under the fluctuating work week can be paid less than one third of what they deserve.  There is no similar regulation in our Connecticut system.  To see a recent case discussing the pros and cons of this argument, see Hunter v. Sprint Corp., 453 F.Supp.2d 44, (D.D.C. 2006).  Attorney Marc Mercier of Beck & Eldergill is handling the case for the plaintiff.  He says that the court could avoid this issue, but that the issue could be considered.  Lets wish him luck in this important case.