The Fifth Circuit Court of Appeals made and important ruling on October 18, 2018 in Dacar v. Saybolt L.P. For many years, employers who are sued for unpaid overtime at 1.5 times the regular rate often argue for a retroactive application of the FWW method of calculating overtime.
What is fluctuating workweek (FWW) method to calculate overtime?
Many people do not understand the difference between overtime calculated at 1.5 x the regular rate as opposed to FWW. The Fair Labor Standards Act (FLSA) requires employers to pay their workers 1.5 for all hours worked over 40 a week. Overtime pay calculated under the 1.5 method is 3x higher than overtime calcuated under the FWW method.
The Fluctuating Workweek (FWW) Method of Calculating Overtime Does Not Apply if Pay Depends on Hours Worked
Saybolt LP, is an energy service company operates out of Port Neches, Texas and LaPlace, LA. The company employs inspectors to test petroleum products for customs purposes. Saybolt was sued by their inspectors for failing to pay them the correct overtime. The company used the fluctuating workweek (FWW) method to calculate overtime compensation for some of its oil and gas inspectors who worked different amount of hours each week.
The company paid the plaintiffs a salary and also paid incentive payments for working on a scheduled day off (“day-off pay”), working at sea (“offshore pay”), and working on a scheduled holiday (“holiday pay”). The inspectors sued Saybolt because the incentive payments precluded use of the FWW method and violated the Fair Labor Standards Act (FLSA).
The Fifth Circuit held that Saybolt failed to comply with the FWW method. The company’s use of the FWW method to calculate overtime premiums was erroneous.
Legal Explanation of Why FWW Does Not apply
The Fifth Circuit explained that FLSA generally requires that employees be paid an overtime premium of one and one-half times the “regular rate of pay” for all hours worked in excess of the 40-hour workweek. 29 U.S.C. § 207(a)(1). Although an employer may satisfy this requirement by using the FWWmethod, courts require four prerequisites for its use:
(1)the employee’s hours must fluctuate from week to week;
(2)the employee must receive a fixed salary that does not vary with the number of hours worked during the week (excluding overtime premiums);
(3)the fixed amount must provide compensation every week at a
regular rate at least equal to the minimum wage; and
(4)the employer and employee must share a clear mutual
understanding that the employer will pay the fixed salary
regardless of the number of hours worked.
The district court held that Saybolt did not meet the second requirement—that is, Saybolt failed to pay a “fixed salary” because it paid additional incentives for day-off, offshore, and holiday hours worked each week. The Fifth Circuit Court of Appeals agreed and affirmed. “The case against Saybolt is simple: the FWW method requires a fixed weekly salary that does not vary by the number of hours worked, and Saybolt’s incentive payments caused weekly variance in the FWW inspectors’ straighttime pay”
Companies that bases any part of the compensation on the hours work invalidates the Salary requirement of FWW and risk being sued for 1.5 of the regular rate.