Pennsylvania Supreme Court Holds Fluctuating Workweek Pay Method Not Proper For Calculating Overtime Pay

The Pennsylvania Supreme Court, in Chevalier v. General Nutrition Centers, Inc. dated November 20, 2019, concluded that the fluctuating workweek ("FWW") pay method is not a proper method of overtime pay calculation under the Pennsylvania Minimum Wage Act (PMWA).

The Chevalier decision is contrary to the express provisions in the federal Fair Labor Standards Act (FLSA), which specifically recognize an employer's ability to use the FWW method for computing overtime compensation. The FLSA regulations (29 CFR § 778.114(b)) provide the following example for calculating FWW pay:

An employee whose hours of work do not customarily follow a regular schedule but vary from week to week, whose total weekly hours of work never exceed 50 hours in a workweek, and whose salary of $600 a week is paid with the understanding that it constitutes the employee's compensation, except for overtime premiums, for whatever hours are worked in the workweek. If during the course of 4 weeks this employee works 40, 37.5, 50, and 48 hours, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600.00; for the second week $600.00; for the third week $660 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).

While the PMWA mirrors the FLSA in many respects, it does not expressly allow for the use of the FWW pay method for calculating overtime compensation. Instead, the PMWA left this issue to be addressed by regulations issues by the Pennsylvania Department of Labor and Industry. Unfortunately, the Department did no issue any such regulations to provide guidance as to how to convert the generic overtime compensation formula (1.5 x hourly rate x number of hours over 40) to other compensation methods, such as the FWW pay method.

The Pennsylvania Supreme Court considered this absence of regulation and turned to statutory interpretation when determining whether a 0.5 multiplier as set forth in the federal regulations truly compensated class action plaintiffs at the "time-and-a-half" rate set forth in the PMWA. Specifically, the plaintiffs were former non-exempt store managers paid a fixed weekly salary plus commissions with overtime being calculated by dividing the employee's fixed weekly salary by the actual number of hours work and then paying overtime at 0.5 times that rate. The Court concluded that the PMWA should be interpreted to require application of the 1.5 multiplier ("time-and-a-half") regardless of whether the regular rate was calculated based upon the actual hours worked. This decision expressly held that the FWW method for calculating overtime compensation is impermissible in Pennsylvania to the extent it utilizes a 0.5 multiplier.

If you have questions about the impact of the Pennsylvania Supreme Court's holding in Chevalier or how to properly calculate overtime pay if using the FWW pay method, contact a member of MacDonald Illig's Employment and Labor Practice Group.