Labor & Employment Law Daily Bed Bath and Beyond’s use of fluctuating workweek method was sound
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Wednesday, June 17, 2020

Bed Bath and Beyond’s use of fluctuating workweek method was sound

By Ronald Miller, J.D.

The Second Circuit addressed the fluctuating workweek method for the first time in a published opinion.

The Second Circuit affirmed a district court’s grant of summary judgment in favor of Bed Bath and Beyond in a lawsuit brought by the home goods retailer’s department managers challenging its use of the fluctuating workweek (FWW) method to calculate their overtime compensation. In its first time addressing the FWW method in a published opinion, the appeals court agreed with the district court that the employees fell short of establishing a genuine dispute of material fact as to whether their weekly wages were truly fixed and guaranteed. Further, the appeals court held that the FWW method did not require employees’ hours to fluctuate above and below 40 hours per week, and that the employer’s practice of allowing employees to take days of paid time off on later dates after working on holidays or previously scheduled days off was consistent with the FWW method (Thomas v. Bed Bath & Beyond Inc., June 15, 2020, Calabresi, G.).

Fluctuating workweek method. Prior to March 2015, Bed Bath & Beyond (BBB) calculated the overtime compensation of department managers (DMs) using the FWW method. The DMs brought a collective action alleging that the employer improperly used the FWW method. According to the DMs, BBB was precluded from using the method because: (1) they did not receive fixed and guaranteed weekly wages; (2) their schedules did not fluctuate above and below the weekly overtime limit; and (3) employers using the FWW method may not permit employees who work on holidays or previously scheduled days off to shift their paid time off to later dates. The district court granted the employer’s motion for summary judgment.

Fixed weekly wages. Supreme Court decisions permitting the FWW method, and the DOL’s regulations thereafter, make the existence of a fixed weekly wage guarantee for straight-time pay a core prerequisite for the FWW method. Moreover, 29 C.F.R. § 778.114 expressly requires a “clear [] understand[ing] that the salary covers whatever hours the job may demand in a particular workweek” and that “the employer pays the salary even though the workweek is one in which a full schedule of hours is not worked.” A purported weekly rate that decreases when hours drop below a certain level cannot be a fixed weekly wage for the purpose of 29 U.S.C § 207.

According to the DMs, the employer did not pay them truly fixed weekly wages. In support of their contention, they identified six instances where an employee’s hours worked and credited paid time off totaled fewer than 40 hours, and in which that employee received less than the supposedly fixed weekly wage. However, the appeals court observed that out of over 1,500 weeks’ worth of pay records submitted to the district court, these were the only workweeks in which employees’ hours worked and credited paid time off totaled fewer than 40 hours.

Of particular concern to the appeals court were two of the instances of nonpayment of a fixed weekly wage. At the time one of the DMs was hired, the employer’s agreement permitted her to take unpaid vacation during negotiated periods of time. That arrangement might suggest the absence of an understanding that the employee’s weekly wages were guaranteed. However, the employer provided multiple written notices explaining the FWW method, and the employees did not identify any other instance of similar arrangements for unpaid vacation. Thus, the record did not support an inference of actual absence of a fixed weekly wage.

FMLA absence. Nevertheless, the appeals court found an unpaid day for another employee while she was on FMLA leave puzzling. The DOL has promulgated a regulation, 29 C.F.R. §825.206(b), permitting employers using the FWW method to pay employees temporarily according to a different method when employees take time off work pursuant to the FMLA. However, the court observed that “[i]f an employer chooses to follow this exception to the fluctuating workweek method of payment, the employer must do so uniformly, with respect to all employees paid on a fluctuating workweek basis for whom FMLA leave is taken on an intermittent or reduced leave schedule basis.”

The district court did not assess the employer’s compliance with §825.206(b). Still, the appeals court determined that the totality of the facts precluded an inference, from this single day of possible underpayment, that the employer did not generally pay employees guaranteed weekly wages.

Limited fluctuations. The employees also challenged the district court’s determination that the limited fluctuations in their weekly schedules did not preclude use of the FWW method. They contended that their weekly hours must both fall below and rise above the FLSA non-overtime limit of 40 hours with some frequency in order for employers to use the FWW method, and that their schedules did not fluctuate in that manner. Yet the six alleged instances of nonpayment of a fixed weekly wage were the only weeks—out of more than 1,500 weeks’ worth of pay records—for which the employees’ actual hours worked and credited paid timed off totaled fewer than 40 hours.

The essence of a guaranteed weekly wage is an employee’s receipt of that wage for weeks with less than 40 hours of actual work. In this case, the employer did not expressly identify any weeks during which an employee received a full weekly rate where the employee’s actual hours worked and credited paid time off totaled fewer than 40 hours. However, the appeals court held that the FWW method does not require weekly schedules that fluctuate above and below the FLSA non-overtime limit of 40 hours per week, so long as employees receive a weekly rate that is truly fixed and guaranteed for straight-time pay, and there is a clear understanding regarding the FWW method.

Prompt corrections. The appeals court agreed with the district court that the employees fell short of establishing a genuine dispute of material fact as to whether their weekly wages were truly fixed and guaranteed. The court noted that the two more puzzling instances of alleged underpayments bore no connection to each other, or to the other four disputed weeks. Further, the court gave weight to the employer’s prompt correction prior to litigation of the alleged payroll errors that led to the underpayments.

Paid time off. Finally, the appeals court rejected the employees’ contention that the employer’s practice of permitting employees to take days of paid time off on later dates after working on holidays or previously scheduled days off was inconsistent with the FWW method. Nothing in the FLSA, Supreme Court precedent, or § 778.114 prohibited the employer’s practice, and DOL opinion letters applying § 778.114 suggest that employers enjoy broad latitude in allocating days of paid time off, so long as they do not dock employees’ pay.

Accordingly, the appeals court affirmed the district court’s order granting BBB’s motion for summary judgment and denying the employees’ motion for summary judgment.

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