Labor & Employment Law Daily Performance bonuses should have gone into overtime calculation
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Wednesday, September 9, 2020

Performance bonuses should have gone into overtime calculation

By Brandi O. Brown, J.D.

Oil workers’ overtime pay claim was rejected by the jury but partially revived by the appeals court.

Reversing the denial of judgment as a matter of law as to one aspect of the regular rate calculation for certain oil workers, the Fifth Circuit found that although a jury properly concluded that stage bonuses should not be included in the regular rate of pay, a different result should have been reached with regards to performance bonuses. The oil workers presented evidence of a written agreement governing the amount of performance bonuses, which meant the employer did not retain the necessary discretion for excluding the bonus from the regular rate calculation. As a result, those bonuses should have counted towards calculation of overtime, and the district court should have entered judgment as a matter of law. The district court’s judgment was reversed in part and affirmed in part (Edwards v. 4JLJ, LLC, dba J4 Oilfield Services, September 2, 2020, Willett, D.).

Bonuses not included in calculation. Workers for a company that provides oil well pump and frack services alleged that the company violated the FLSA’s overtime wage requirements. Specifically, they alleged that the employer failed to include bonuses in the “regular rate” for purposes of overtime calculations. One was a “stage bonus,” which is a bonus given at the completion of a stage of well fracking; it was not memorialized in writing. The other was a quarterly “performance bonus,” which was memorialized in writing. The written contract was given to employees when they were hired and stated that it had to be earned and should not be expected. A pay scale was given for calculation of the bonus, based on three classes of employees. The “A Class” scale was $1.00 per hour, the “B Class” was $0.75 per hour, and the “C Class” was $0.50 per hour.

Jury verdict for employer. After a “bitter discovery brawl” that ended with the court’s intervention and imposition of sanctions on the employer, the case was tried before a jury for five days. The jury found in favor of the employer on every issue, and the employees moved for judgment as a matter of law. While their repeated motions for judgment were denied, they were awarded monetary sanctions. The employer’s motion for costs, as the prevailing party, was granted, but only about one-third of the requested amount was ordered. The parties appealed and the Fifth Circuit concluded that it had jurisdiction.

Employees’ burden. Reviewing the denial of the motion for judgment as a matter of law de novo, but cognizant of the “especially deferential” standard it should apply to a jury verdict and the jury’s special role, the appeals court nonetheless determined that the motion should not have been denied in its entirety. The “core issue on appeal,” the court explained, was whether the employer should have factored the bonuses into the overtime wage calculation. Overtime pay constitutes one and one-half times the employees’ “regular rate” of pay and that “regularly rate” is the hourly rate paid for “all remuneration for employment.”

Burden on employees as to whether bonuses are discretionary. However, under section 207(e)(3), remuneration is not included if the fact of payment and the amount of payment are “determined at the sole discretion of the employer.” This led to a question of first-impression for the Fifth Circuit, i.e., who has the burden of proof on whether bonuses are discretionary and therefore excluded under section 207(e)(3)? The court concluded that the burden was on the employees because subsection (e)(3) was “merely a definition element of the regular rate” and thus “merely a definition element of” their claim.

Reversal on performance bonuses. They met that burden with regards to performance bonuses. They produced a written agreement at trial that governed performance bonuses—it listed criteria for determining whether the bonus would be awarded and, importantly, a pay scale stipulating precisely how much would be given. While it was reasonable for the jury to conclude that the employer retained discretion over whether to give the bonus, particularly in light of the agreement’s statement that the bonuses were “NOT TO BE EXPECTED,” it was not reasonable for the jury to conclude that the employee retained discretion over the amount.

The performance bonus agreement provided a concrete pay scale, the court explained, which showed precisely what employees would be paid if they received the bonus. There was no evidence that the bonus deviated from those amounts. Based on the agreement and the “complete absence of any evidence contradicting the universal applicability of the agreement,” the court concluded, a reasonable jury could not have determined that the employer retained discretion over the bonus amount. Therefore, those bonuses ought to have been included in the regular rate and the employees were entitled to judgment as a matter of law regarding the performance bonuses.

Stage bonuses. However, the employees did not meet their burden with regards to the stage bonuses. They argued that those bonuses were nondiscretionary as a matter of law, but they struggled to provide support in the record for any of their assertions. They showed no evidence in the record indicating how workers came to expect stage bonuses, who determined the amount, when it was determined, whether all employees typically received those bonuses, or whether the amount ever varied.

Affirmed otherwise. As to other matters on appeal, the court found no abuse of discretion in the district court’s award of the employees’ attorney fees as to the sanctions, declining to “second-guess the district court’s sense of rough justice.” It also found no basis to question its decision to reduce the amount of costs awarded to the company. The court also agreed with the jury’s conclusion that the individual owner of the company was not an “employer.”

Accordingly, the court reversed the district court’s denial of judgment as a matter of law and remanded to that court to determine what relief was owed to the employees consistent with the appeals court’s opinion. Otherwise, it was affirmed.

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