First Circuit U.S. Court of Appeals Approves Fluctuating Workweek Overtime Calculation Method Using Performance-Based Commissions

APPLIES TO

All Employers in Maine, Massachusetts, New Hampshire, Rhode Island

EFFECTIVE

February 12, 2016

QUESTIONS?

Contact HR On-Call

(888) 378-2456

The U.S. Court of Appeals for the First Circuit recently ruled on a Massachusetts District Court case stating that an employer’s use of the fluctuating work week (FWW) method to calculate overtime, when factoring in a performance-based pay structure, does not violate the federal Fair Labor Standards Act (FLSA) or Massachusetts Minimum Fair Wage Law.

In Lalli v. Gen Nutrition Centers, Inc., the complainant, Joseph Lalli, was a store manager for GNC whose pay was structured as follows: (1) a guaranteed weekly salary, regardless of hours worked each week; (2) a non-discretionary sales commission based on the amount of eligible sales made each week; and (3) an overtime premium for each hour worked in excess of 40 hours in a given week.  GNC used a FWW method to calculate the overtime pay.  Lalli disputed the method of calculation.

On appeal, the First Circuit stated that the FWW method used by GNC was compliant.  The court referred to O’Brien v. Town of Agawam, restating four basic conditions for employers to use the FWW method as set forth under federal regulations:

  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 be sufficient to provide compensation every week at a regular rate that is at least equal to the minimum wage; and
  4. The employer and employee must share a “clear mutual understanding” the fixed salary will be paid by the employer, regardless of the number of hours worked.

Additionally, an employer must also pay the employee a 50% overtime premium in addition to the fixed weekly salary for all hours worked in excess of 40 during the week.

The Court stated that performance-based commissions would not be counted under the findings of O’Brien because performance-based bonuses couldn’t be said to vary based on hours worked, excepting unusual circumstances.  Lalli’s salary and commissions were not based on hours worked; his salary was fixed, regardless of hours worked, and the commission bonus was based on performance rather than hours.

Action Items:

  1. Review pay structures, if utilizing a FWW method to calculate overtime, to ensure compliance with FLSA and local minimum wage requirements.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2016 ManagEase, Incorporated.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *