Fluctuating Work Week Overtime Model Now Illegal in PA
On November 20, 2019, the Commonwealth’s highest court issued a significant decision regarding overtime compensation, which makes it illegal for employers to use the "fluctuating work week" method ("FWW") to calculate overtime. In this significant departure from longstanding wage and hour practices and federal law, the Supreme Court of Pennsylvania outlawed the FWW method because it does not guarantee non-exempt employees at least one-and-one-half times their regular rate for working more than 40 hours per workweek, as required by state law.
GNC Store Managers Bring Suit for Overtime Violations
This decision arose from the matter of Tawny Chevalier et al. v. General Nutrition Centers Inc. et al., in which a class of GNC store managers brought a lawsuit against the company in 2013, alleging violations of Pennsylvania overtime laws. In this case, the managers earned a salary plus commission, regardless of their hours worked in a single workweek. However, the managers argued that GNC had violated the Pennsylvania Minimum Wage Act ("PMWA") by using the 0.5 multiplier under the FWW model to calculate overtime wages, instead of the standard overtime rate consisting of a 1.5 multiplier.
Under the FWW model, non-exempt, salaried employees with fluctuating work schedules may be paid their regular rate through previously agreed upon salaried wages, and the employer is allowed to account for overtime by paying these employees an additional one-half times their regular rate (0.5 multiplier), in lieu of the standard 1.5 multiple. The regular rate is determined by dividing the number of hours worked in that workweek by the employee’s weekly salary.
GNC took the position that it appropriately relied on the FWW method to calculate overtime under the PMWA because this method has long been recognized in Pennsylvania, as well as under the Fair Labor Standards Act ("FLSA"). GNC also argued that permitting these employees to collect overtime at the 1.5 multiplier rate would result in employees earning two-and-one-half times their regular rate because they would be paid their base salary accounting for their regular pay rate, plus the 1.5 multiplier in overtime compensation.
As a result of this lawsuit, the court was compelled to determine whether the FWW overtime model complied with the PMWA. The trial and appellate courts found that the FWW model was unlawful under the PMWA, and awarded judgment in favor of the GNC workers. Thereafter, GNC brought the case to the Pennsylvania Supreme Court for review.
PA Supreme Court Rules that the FWW Method Violates the PMWA
The high court observed that this issue hinged on the interpretation of the following language in the PMWA: "Employe[e]s shall be paid for overtime not less than one and one-half times the employe[e]'s regular rate as prescribed in regulations promulgated by the secretary." 43 P.S. § 333.104(c). Notably, however, the PMWA is silent as to overtime calculations for non-exempt employees who are paid a salary regardless of the hours worked each week.
As the PMWA is silent on the issue of the FWW standard, the court was guided by: (1) the occasion and necessity for the PMWA; (2) the circumstances under which the statute was enacted; (3) the object to be obtained; and (4) the former law, if any, including other statutes upon the same or similar subjects. After weighing these factors, the majority ruled in favor of the GNC employees; effectively outlawing the FWW method for calculating overtime in Pennsylvania.
The court found that the PMWA was substantially different from the FLSA because it did not recognize the FWW on the face of the statute, even though the PMWA had been adopted years after the FWW method was recognized by federal law. The Supreme Court also determined that the FWW model undermined the intent of the legislature that all employees who work more than 40 hours per week should earn at least one-and-one-half times their regular rate in order to offset any disproportionately low wages they may be paid.
Pennsylvania employers with non-exempt, salaried employees who rely on the FWW method to calculate overtime should swiftly review and update their overtime policies in light of the Chevalier decision. The FWW is no longer permissible in this state. Now, all non-exempt employees must be paid at least 1.5 times their regular hourly rate for working more than 40 hours per workweek, regardless of their salary status. Employers with questions regarding compliance with state and federal wage and hour laws should contact experienced employment counsel for assistance. This author can be reached at Lisa.Koblin@saul.com .