Damage Calculations In FLSA Misclassification Cases

In Fair Labor Standards Act ("FLSA") misclassification cases, the issue of whether to utilize a 1.5 multiplier to the regular rate for all hours worked over 40 or a .5 multiplier to the regular rate of pay (or Fluctuating Work Week ("FWW") calculation) continues to vex courts and result in divergent results.  The most recent decision on this topic, Blotzer v. L-3 Communications Corp., 2012 U.S. Dist. LEXIS 173126 (D. Az. Dec. 5, 2012), is a pro-employee result.  Blotzer held that a misclassified employee MUST receive 1.5 times the regular rate of pay for each OT hour.  The Blotzer court expressly rejected application of the .5 or FWW calculation, stating: "this Court is persuaded by the reasoning of those courts that have concluded the FWW method should not be applied in a misclassification case in light of the FLSA's remedial purpose."  The Blotzer Court went on to reason:

Application of the FWW method in a misclassification case is contrary to FLSA's rationale. The FWW method requires proof of a "clear mutual understanding" that: (1) the fixed salary is compensation for the hours worked each work week, whatever their number; and (2) overtime pay will be provided contemporaneously such that it fluctuates depending on hours worked per week. See 29 C.F.R. §§ 778.114(a) & (c). In a misclassification case, at least one of the parties initiated employment with the belief that the employee was exempt from the FLSA,

paid on a salary basis, and therefore not entitled to overtime. When an employee is erroneously classified as exempt and illegally being deprived of overtime pay, neither the fourth nor fifth legal prerequisites for use of the FWW method is satisfied. The parties do not have a "clear, mutual understanding" that a fixed salary will be paid for "fluctuating hours, apart from overtime premiums" because the parties have not contemplated overtime pay.

The Blotzer Court articulated the "perverse incentive" and profound and negative consequence of applying the FWW calculation in a misclassification case:

Application of the FWW in a misclassification case gives rise to a 'perverse incentive' for employers, because the employee's hourly 'regular rate' decreases with each additional hour worked. In fact, the difference between the FWW method and the traditional time-and-a-half method can result in an employee being paid seventy-one percent less for overtime over a given year . . .

Blotzer is in accord with several other District Court decisions.  See, e.g., Perkins v. Southern New Eng. Tel Co., 2011 U.S. Dist. LEXIS 109882 (D. Conn. Sept. 27, 2011) ("This court agrees with other district courts that have analyzed this issue and concludes that section 778.114 does not support the use of the fluctuating workweek method in the circumstances presented in this misclassification case."); In re Texas EZPawn FLSA Litig, 633 F. Supp. 395 (W.D. Tx. 2008) (collecting and analyzing cases and rejecting application of FWW calculation as inconsistent with remedial purposes of FLSA).

In Florida, there are two reported decisions that expressly address this issue.  Not surprisingly, and consistent with the split around the country, these two decisions reach diametrically opposed rulings.  Indeed, in Torres v. Bacardi Global Brands Promotions, Inc., 482 F. Supp. 2d 1379 (S.D. Fla. 2007), the Court ruled that the plaintiff, if misclassified, would only be entitled to a .5 premium for all overtime hours because the fixed salary provided to the employee provided his regular rate of pay for all hours worked.  Antithetically, in West v. Verizon Servs. Corp., 2011 U.S. Dist. LEXIS 5952 (M.D. Fla. 2011), the Court rejected application of the .5 calculation by analyzing and concluding the FWW method could not be invoked based on the facts of the case.

An extensive review of the case law suggests that there are no Federal Circuit Court of Appeals decisions rejecting the application of the .5 analysis to misclassification cases.  Conversely, there are several Federal Circuit Court of Appeals decisions (not including the 11th Circuit Court of Appeals) concluding it is proper to apply the FWW calculation to misclassification cases.  See, e.g., Desmond v. PNGI Charles Town Gaming, LLC, 630 F.3d 351 (4th Cir. 2011);  Clements v. Serco, Inc., 530 F.3d 1224, 1230-31 (10th Cir. 2008); Valerio v. Putnam Assocs. Inc., 173 F.3d 35, 40 (1st Cir. 1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138 (5th Cir. 1988).  Similarly, Urnikis-Negro v. Am. Family Prop. Servs., 616 F.3d 665 (7th Cir. 2010), concluded that while the FWW calculation should not be utilized in misclassification cases, the proper calculation in a misclassification case is to provide a .5 multiplier to all hours over 40 that the parties agreed to work based on the United States Supreme Court decision, Overnight Motor Transp. Co. v. Missel, 316 U.S. 572 (1942).

Accordingly, whether to apply a 1.5 or .5 calculation to misclassification cases in Florida remains unclear and will require a factual analysis of the origin/motivation/nuances of the offer of employment and the agreement between the employer and employee as to how many hours the salary was provided to compensate.  For an employer to change a non-exempt position to exempt solely to circumvent the 1.5 multiplier for all hours worked over 40 will likely be met with a conclusion that the FWW and Missel are not applicable.