In settlement negotiations and trial of FLSA overtime misclassification cases, there is usually a disagreement between the parties as to how the unpaid overtime should be calculated. Attorneys representing employees typically want overtime calculated using a 1.5 times the regular rate of pay for each overtime hour that was worked. Attorneys representing companies typically want to utilize the “fluctuating workweek” method of calculating overtime. A recent case from the Fifth Circuit Court of Appeals confirms that the proper method of calculating unpaid overtime in a misclassification case if the use of the fluctuating workweek method.

In Ransom v. M. Patel Enterprises, Inc., fifteen executive managers of an Austin-based party retail store secured a jury verdict that they had been misclassified as exempt employees and where therefore entitled to unpaid overtime. After the issue of liability was resolved, the presiding judge assumed responsibility for calculating the damages. The judge determined that the fixed-salary paid to the employees was for a set 55 hour workweek. The judge then divided the number of total hours in the workweek by the employees’ salary to determine a regular rate of pay. Concluding that the hours worked in excess of forty per workweek were uncompensated, rather than compensated at straight time, the judge then multiple one and a half times the regular rate of pay times all hours worked in excess of forty per workweek. The Court of Appeals held that that this improperly inflated the amount of overtime the trial judge awarded.

Rather, the court of appeals held that the trial judge should have divided the employee’s weekly salary by the number of total hours worked in a the workweek to determine the regular rate of pay. Having determined the regular rate of pay, and applying the fluctuating workweek method of calculation, the Court explained that the trial judge should have then applied ½ of the regular rate of pay to only the overtime hours (i.e., the hours in excess of forty per week) to arrive at the unpaid overtime premium the misclassified employees were entitled to receive.

The takeaway from this case is that when a misclassified employee works fluctuating hours during the workweek, the amount of unpaid overtime should be calculated using the fluctuating workweek method of calculation. This decision has the effect of reversing the published opinion in In re EZ Pawn LP Fair Labor Standards Act Litig., 633 F.Supp. 2d 395 (W.D. Tex. 2008) that plaintiff lawyers frequently cite to support a more generous overtime calculation. You can review download the full opinion in Ransom v. M. Patel Enterprises, Inc. here.

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