2nd Cir.: Workers' hours need not drop below 40 for fluctuating workweek pay

Dive Brief:

A class of Bed Bath & Beyond workers could not prove the store underpaid overtime by calculating their compensation with the fluctuating workweek (FWW) method, the 2nd U.S. Circuit Court of Appeals ruled (Thomas, et al. v. Bed Bath & Beyond Inc., No. 19-1647 (2nd Cir. June 15, 2020)).
The workers argued that, to be paid by the FWW method, their hours needed to "both fall below and rise above the [Fair Labor Standards Act] non-overtime limit of 40 hours with some frequency," and that theirs generally did not fall below 40. The appeals court called this argument "unavailing," noting earlier U.S. Supreme Court rulings on the topic contain "no internal principle for imposing such a limitation."
Employers may use the FWW method to calculate overtime, the court said, so long as they satisfy two requirements: 1) Employees receive a weekly rate "that is truly fixed and guaranteed; and 2) Employers and employees "come to a clear mutual understanding regarding the FWW method."

Dive Insight:

Bed Bath & Beyond compensated workers involved in the lawsuit using the FWW method, regulations regarding which the U.S. Department of Labor updated late May. This method allows employers to pay non-exempt employees with fluctuating hours a fixed salary that compensates them for all work each week.

When workers put in less than 40 hours, they're paid the fixed salary. When they put in more than 40 hours, necessitating overtime, employers determine their regular rate by "dividing the number of hours worked in the workweek into the amount of the salary." They then pay workers at least one-half of the regular rate in addition to the salary, the agency says in guidance.

The 2nd Circuit's ruling has several clear takeaways, including that employers must communicate to employees paid by the FWW method how they are compensated, Seyfarth Shaw attorneys wrote in a blog post.

Employers ought to explain to FWW-paid workers in writing that their fixed salary is "intended to compensate them for all hours worked in any week and that their overtime premium rate will be at half the effective hourly rate of their salary that week based on their actual hours worked." It's also important, as this case demonstrates, that employees understand that their actual hours will fluctuate based on business needs, even if their scheduled hours do not change drastically, the attorneys wrote.