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.

Why are wage / hour class actions important?


Workers’ wages are stagnating at a time when there is more than enough money to pay them fairly. That’s it.

Robert Reich explains this point very well in his recent essay. He observes:

Until the 1980s, corporate CEOs were paid, on average, 30 times what their typical worker was paid. Since then, CEO pay has skyrocketed to 280 times the pay of a typical worker; in big companies, to 354 times.

Meanwhile, over the same thirty-year time span the median American worker has seen no pay increase at all, adjusted for inflation. Even though the pay of male workers continues to outpace that of females, the typical male worker between the ages of 25 and 44 peaked in 1973 and has been dropping ever since. Since 2000, wages of the median male worker across all age brackets has dropped 10 percent, after inflation.

Employers, simply put, have more than enough money to pay workers fairly and are making bundles of cash. They simply don’t want to pay them their fair share for the profits that their work produces. The stock market is higher than ever. CEO salaries are higher than ever, but workers’ wages are flat or down.

Wage and hour class actions are an important tool in the war between employees and employers for fair wages. They make employers obey the wage and hour laws and make them pay millions when they violate them. I asked some defense attorneys recently what was the most feared lawsuit by employers. They all agreed it was wage / hour class actions.

So, let’s keep them coming. Let’s keep fighting for employees’ rights to at least be paid what they earned.

Inside Sales employees: how is overtime calculated?


Recently I wrote about the employees who are considered “inside sales” and when they get overtime pay. How to calculate their overtime pay is also a complicated and controversial matter.

Some employers pay their inside sales staff an hourly wage, plus commissions. In this case, when overtime hours are worked (more than 40 in a week), the commissions must be incorporated into the weekly wage and overtime paid on all of it. The overtime cannot be limited to one and a half times the hourly wage.

Other employers (including Radio Shack, GNC) pay these employees on the “fluctuating work week” method of overtime pay. This formula pays a fixed salary, then calculates overtime by dividing the salary by the total hours worked in the week. This method results in a payment that some refer to as “Chinese Overtime” or “Half Time Overtime” and employees don’t like it. Employers like it for obvious reasons (it costs them less than 1/3 what normal overtime costs).

A question arises whether this method of paying overtime can be used when the employee gets a salary and commissions. Employees’ lawyers say no, since the varying commissions make the weekly pay vary (in violation of the “fixed” weekly salary rule). Employers’ lawyers say yes since the base salary is fixed and commissions aren’t a part of the weekly salary.

I believe that the fluctuating work week method of paying overtime should not be used when the employee is paid commissions in addition to salary. The commissions push the employee to work long hours, since the more they work, the more they sell. This incentive to work long hours is contrary to the idea behind the fluctuating work week since the more you work, the smaller your overtime premiums become. I don’t believe that an employer should be able to pay the cheaper ½ time overtime while simultaneously incentivizing its employees to work long hours. I believe this overtime scheme should be limited to employees whose only non-overtime pay is a fixed weekly salary.

The U.S. Department of Labor wrote, in 2011, that bonuses are “incompatible” with the fluctuating work week method of overtime pay. It wrote that it was against the expansion of this payment scheme:

Finally, while the proper use of the fluctuating workweek method of pay results in an employee being paid time and one-half of the employee’s regular rate for overtime hours, the Department is cognizant that this method of pay results in a regular rate that diminishes as the workweek increases, which may create an incentive to require employees to work long hours. The Department does not believe that it would be appropriate to expand the use of this method of computing overtime pay beyond the scope of the current regulation.

Lawsuits are presently on file in federal courts in Connecticut and Massachusetts placing these issues in front of judges. It will be an interesting year.

Are auto damage appraisers entitled to overtime pay?

As an attorney, I fully understand the frustration that comes when we just can’t give a straight answer to a simple question.  The problem is that different judges can rule differently on the same issue.  When that happens (we call that a “split of authority”) things get confusing.

The law regarding auto damage appraisers is a good example.  Some courts have ruled that they get overtime pay and some have ruled that they don’t.

Any historical analysis starts with the U.S. Department of Labor.  Here is what they have said since 1975:

Auto damage appraisers:  Appraisers whose functions are to inspect damaged motor vehicles in order to estimate the cost of the necessary repairs, and who also reach an “agreed” price with the repair shop on the cost of repairs, do not customarily and regularly exercise discretion and independent judgment as required by Reg. 541.2.  Their work consists essentially of the determination of facts, and in making their estimates they are guided primarily by their skill and experience and by written manuals of established labor and material costs.  However, there may be sufficient elements in the job to permit the application of the upset salary rule.

Field Operations Handbook,  Section 22d01.  A federal judge in Connecticut ruled in favor of auto damage appraisers in 1994.  Reich v. AIAC, 902 F.Supp. at 326 (granting judgment for automobile damage appraisers).  Another Connecticut judge ruled in favor of auto damage appraisers in 2007 (Neary v. Metropolitan Prop. & Cas. Ins. Co., 517 F.Supp.2d 606 (D.Conn. 2007).  The Ninth Circuit Court of Appeals wrote this:

Appraisers who merely inspect damaged vehicles to estimate the cost of labor and materials and to reach an agreed price for repairs with the repair shop have not been considered as the type of employees who customarily and regularly exercise discretion and independent judgment. . . .  In making their estimates, they are guided primarily by their skill and experience and by written manuals of established labor and material costs. . . . DOL Wage & Hour Div. Op. Ltr., at 1-2 (Feb. 18, 1963). 

In contrast, an adjuster “investigates the validity and the extent of liability of a claim and negotiates settlement . . . irrespective of whether the claim is one for property damage or for personal injury.”  Id. at 2.  And in 1957, the DOL opined that if adjusters are given “reasonable latitude in carrying on negotiations with the insured, the results of which form the basis of their recommendations, they may be [exempt].”  DOL Wage & Hour Div. Op. Ltr., at 2 (Oct. 24, 1957).  If those adjusters had authority to make settlements, that would be “stronger evidence of their exercise of discretion and independent judgment.”  Id.In re Farmers Ins. Exch., 466 F.3d 853, 861 (9th Cir. 2006).

                Occasionally, courts have ruled that auto damage appraisers are more like adjusters and are exempt.  The Seventh Circuit Court of Appeals ruled in 2008 that Material Damage Appraisers at CC Services were not entitled to overtime wages.  Roe-Midgett v. CC Services, Inc., 512 F.3d 865 (2008).  These workers had settlement authority up to $12,000.  The D.C. Court of Appeals ruled that “auto damage adjusters” at GEICO are not entitled to overtime pay.  Robinson-Smith v. GEICO, .. F.3d. .. (2010).

                The key difference seems to be the extent to which the employee handles total loss claims and negotiates with insureds.  The more total loss and the more negotiation, the more likely courts are to rule that they are exempt adjusters.  On the other hand, the more the employees work is limited to appraising damaged vehicles and following company guidelines, the more likely he is to be non-exempt.


BJ’s sued a third time for same wage violation!

Are overtime class actions deterring employers?  Evidently not!

In 2008, BJ’s Wholesale Club was sued for not paying overtime wages to its “mid-managers.”  That lawsuit alleged that “mid-managers” worked over 40 hours per week without any extra pay and that they did not qualify for the “executive” exemption because their primary duty was not management.  Employees who spend most of their time and efforts performing hourly tasks and only occasionally act as managers cannot be considered “executives” under the law.

This first lawsuit settled for over $9 million dollars within one year.  Despite this multi-million dollar payout, BJ’s continued to deny its mid-managers overtime pay.  They maintained their “exempt” classification and benefited from the many long hours these employees worked without overtime premiums.

In 2012, BJ’s was hit with another overtime lawsuit for a smaller group of mid-managers.  That case settled for $2.7 million, and, again, you guessed it – BJ’s continued to maintain the “exempt” classification of its mid-managers.

This time, however, BJ’s took internal steps to prevent another class action lawsuit.  In April 2013, it rolled out a new employee handbook which contained language designed to keep employees away from the courts and to prevent class actions.  It called its program the Open Door Solutions plan,  BJ’s President Laura Sen introduced this plan as a way to “keep the lines of communication open” with her “Team Members.”  She also claimed that the plan allowed BJ’s employees to “achieve a thoughtful resolution of any issues.”  In fact, this plan’s central purpose was to avoid future costly class action litigation and to enable BJ’s to continue its exempt classification of its mid-managers.  The documentation included a “Class Action Waiver”, which was designed to prevent class actions by BJ’s employees.

Well, it didn’t work.  Recently, a third class action was filed against BJ’s by mid-managers.  This lawsuit is on file in the District of Connecticut.  It claims, like the lawsuits before it, that mid-managers spend most of their time doing hourly work (i.e., not managing) and that they should be compensated for their overtime hours.  One interesting note, the class action waiver prohibits class arbitrations, but not class actions in court:

“Notwithstanding this section, BJ’s agrees that I am not waiving my right under Section 7 of the National Labor Relations Act to file or participate in a class or collective action in court,…” 

This language leaves the door wide open to a class or collective action in court.

Final thoughts?  Wouldn’t it be easier and fairer to simply pay these hard working employees their fair wages? Is it so important to BJ’s  bottom line to classify these employees as “executives?”  Wouldn’t it be better to pay them rather than BJ’s lawyers?  Like I said, as expensive as these class actions are to defend and settle, companies still find it profitable to classify workers as exempt wherever they can.  The amount they save in labor costs is usually far greater than what they pay in settlements and attorneys’ fees.  Too bad for hard working mid-managers.  They deserve to be paid for the hours they work – all of them!

Grocery store worker

Fresh Market “Chinese Overtime” Challenged in Court! Plaintiffs move for notice to go out to class of Department Managers.

Most employers pay non-exempt workers an hourly rate, say $15.00, and they pay time and a half when they work more than 40 ($22.50).  What if I told you that some companies only pay ½ time (not time and a half) for overtime hours?  Would you say, hey they can’t do that?  Well, you might be right.

While the normal way of paying overtime is time and a half, there is a little known and little used regulation in the federal wage laws that permits half time (or less) to be paid.  They call in the “Fluctuating Work Week” method of overtime pay.  Sometimes you may hear it referred to as “Chinese Overtime.”

The general rules are that the employee must make a fixed salary for their hours from 1 to 40, and then they get a ½ time rate for hours over 40.  It is very complicated, confusing, and usually unfair to workers.

Take this example.  A worker makes $800 per week.  Most would convert this into an hourly rate of $20.  Overtime would then be $30 (time and a half).  Under this scheme, if that worker worked 50 hours in a week, they’d only get $8 per hour or $80 total for their 10 overtime hours.  Most people would believe that they should get $300.

The Fresh Market uses this pay scheme to pay its Department Heads or Department Managers.  A lawsuit has been filed in Federal Court in Connecticut challenging this pay scheme.  Among other things, it claims that The Fresh Market’s deferral of some of the Department Head’s compensation into quarterly and year-end bonuses violates this law.  The U.S. Department of Labor in 2011 rejected attempts by employers’ lobbies to permit bonuses for employees paid via the Fluctuating Work Week.  The lawsuit also claims that The Fresh Market failed to clearly explain this pay scheme to its Department Heads. 

Recently, lawyers for the Department Heads have filed a motion with the court asking permission to send a notice out to Department Heads and Department Managers around the country letting them know of their rights and that they can join the lawsuit.  That motion is still pending.  The Fresh Market has opposed that motion, claiming that all Department Heads are different.
If the court grants the motion, Fresh Market Department Heads around the country will receive notice and a consent form that they can use to join the case.  More information can be obtained by visiting the website of the Hayber Law Firm.


Progressive Appraisers – Are they entitled to Overtime wages?

The U.S. Department of Labor and many courts have ruled that auto damage appraisers are entitled to overtime wages.  Progressive insurance company does not pay overtime wages to its automobile damage appraisers (“MRRs” or “Claims Adjuster – Auto Damage”).  While some courts in some cases have ruled that appraisers who also perform claims adjusting duties are not entitled to overtime, it is not clear that these appraisers are actually “adjusters.”

Several years ago, there were a few overtime class actions for auto appraisers here in Connecticut, and th0se cases ended successfully.  In one case, a Connecticut judge denied the employer’s motion to have the case dismissed.  Because of this case and some others, the law in Connecticut is favorable to auto damage appraisers who work more than 40 hours per week and do not earn overtime pay.

In these lawsuits, appraisers usually claim that their work is limited to using a computer system to obtain an appraisal for the damage to the car.  They then issue a check, either to the insured, or the auto body shop.   In some cases, they also have the authority to negotiate and settle total loss claims, but more and more companies are assigning those duties to total loss specialists.   When an employee’s duties are limited to appraising and paying auto body shops, they are usually entitled to overtime wages.

Many appraisers work long hours driving to insured’s homes, to auto body shops, and to the home office.  They often start working at home in the morning and continue working after they get home at night.   Many companies have reclassified these workers to hourly, but a few have not.