Professional Service Agreement

Retailer Did Not Misuse Fluctuating Workweek Method Even Though Hours Were Almost Always Over 40

January 28, 2019

Bed Bath and Beyond was entitled to use the fluctuating workweek (FWW) method for calculating overtime pay for managers whose weekly hours varied from week to week, even though, for the most part, their hours only varied over—not above and below—the 40-hour threshold, a federal court in New York found. Moreover, one errant week in which the retailer improperly breached the FWW protocol by docking an employee for unpaid leave did not forever disqualify the employer from using the alternative compensation scheme.

FWW method used. The plaintiffs, a group of department managers, alleged they worked more than 40 hours a week most weeks, typically 47.5 hrs. In almost every week at issue here, they worked 40 or more hours, or were credited as such. However, three plaintiffs, on a few occasions, took unpaid leave and were paid less than their base salary. Based on these isolated instances, they argued that Bed Bath and Beyond was precluded completely from using the FWW method as to all the department managers.

The FWW or “half-time” method for calculating overtime pay allows employers to pay employees a flat weekly fee for fluctuating hours week-to-week so long as employees are paid an additional 50 percent for the hours they actually work over 40 in a given week. However, to use the FWW method, five requirements must be satisfied, as set forth in the applicable DOL regulations. The managers challenged whether several of those criteria were met. They argued that they weren’t really paid a fixed weekly salary, regardless of the number of hours they worked, and that their hours did not “fluctuate” from week to week, at least within the spirit of the FWW approach, as intended. They also said there was no “clear mutual understanding” that the company would use the FWW method.

“Bonus” days off. The managers were given flexible, paid vacation days off when they worked holidays or other “off” days. This was an “hours-based” bonus, they argued, which disqualified the company from using the FWW method. The managers were right, on the law: the DOL treats paid time off as compensation, and courts are nearly unanimous in holding that paying employees extra for working a holiday or other “off” day offends the “fixed weekly salary” requirement. On the facts, though, they got it wrong. The employer wasn’t giving them additional compensation for working an off day—it was simply letting them bank an alternative day off for another time. This practice did not run afoul of the FWW method.

Docked pay. Bed Bath and Beyond docked managers who took unpaid leave or worked fewer than 40 hours for some other reason—another breach of the FWW method’s requirements, according to the managers. They pointed to 12 specific weeks. For six of these, the manager in question worked no hours at all. Under the FLSA, no payment is required for these weeks, so it was a non-issue. In another instance, an employee was paid pro rata for her last week of employment, which the relevant FWW regulations allow.

As for the remaining weeks, one manager was underpaid by $50 due to a one-off payroll error, which was since rectified. An inadvertent payroll glitch is hardly a policy or practice, and will not forever disqualify an employer from using the FWW method, the court said. One employee was paid less because she took part of the week off for an unpaid vacation, which she had negotiated at the start of her employment. The managers pointed to FLSA opinion letters in support of their position, but they simply don’t address the “idiosyncratic circumstance” of an employee negotiating a one-time leave. And the court saw no sound policy reason to prohibit an employer from negotiating such an arrangement with an employee lest it forever abandon its right to use the FWW method.

That left just one week for the court to contend with, a week in which an employee took one day of unpaid leave, but otherwise worked 39.75 hours. This matter did present “a difficult question of compliance with the FWW,” the court said, noting two opinion letters that, as another court noted, were “unambiguous on this point” and were concededly “difficult to square” with the employer’s failure to provide full pay for this week. But even if the employer’s treatment of this lone week was inconsistent with FWW principles, it was an anomaly, and the fact that it was not systemic or intentional factors into the analysis of whether the employer should be disentitled altogether from utilizing the FWW method.

In all, there were only six problematic work weeks at issue, out of more than 1,000. The infractions were far too few to force Bed Bath and Beyond into retroactively paying its department managers time-and-a-half for all hours worked over 40, particularly since the employer discontinued its use of the FWW method in 2015.

Fluctuating hours. The managers challenged whether their workweeks can be said to “fluctuate,” for FWW purposes, if those hours, in practice, seldom fall below 40 in a workweek, but only vary above the 40-hour threshold. A straight reading of the governing regulation resolved the matter, though: It says only that the hours must vary—not that they must vary above and below the 40-hour-per-week threshold.

As a practical matter, it might make sense to construe such a requirement, the court acknowledged. As one court within the circuit noted, the FWW method would only be of benefit to employees if it meant that a particularly grueling workweek would be offset by the promise of a lighter week to come, clocked in at less than 40 hours, but at the same pay. “‘Otherwise, employees have not bargained for anything [in consenting to an FWW arrangement] but decreasing marginal pay as they work longer and longer hours at work.’” On the other hand, there was no guarantee that employees would fare better under the usual time-and-a-half scheme, since employers might simply opt to pay them a lower hourly rate, the court noted. And, policy arguments aside, the regulations simply mandate that employees’ weekly hours must fluctuate—even if they only fluctuate above the 40-hour line.

Clear mutual understanding. Bed Bath and Beyond provided department managers with documents explaining the FWW method at the time of their hire or promotion. The employees also received a compensation acknowledgement form they were to sign, in addition to an annual notice of the compensation methodology. In addition, the managers received a document setting forth what their pay will be in weeks they work less than 40 hours. Thus, while the managers denied there was “clear mutual understanding” that the FWW method would be used (a prerequisite to its adoption), the record evidence belied their contention. Deposition testimony to the contrary reflected, at most, that some managers subjectively did not fully grasp the intricacies of the pay scheme they had willingly signed on to. This was no reason to disqualify its use.