Employment-Fifth Circuit Rules That Employer Must Use Fluctuating Workweek Method Of Calculating Overtime Wages

In Ransom v. M. Patel Enterprises, Inc., No. 12-50534 (5th Cir. 2013), after a jury found Abigail F. Ransom and fifteen other executive managers (the “plaintiffs”) of Party City, a retail chain, to be misclassified by their employer as exempt from the Fair Labor Standards Act (“FLSA”), the plaintiffs became eligible for an award of overtime wages. Because the plaintiffs were paid a weekly salary, the trial court had to compute their hourly rate of pay in order to award overtime damages. Disregarding the so-called “fluctuating workweek” (“FWW”) method of determining overtime damages – a method established by precedent and relevant federal regulations as applicable in this case – the district court, presided over by a magistrate judge, instead determined overtime damages by using the magistrate judge’s unorthodox preferred methodology. The defendant appeals the calculation method.

In analyzing the case, the Fifth Circuit Court of Appeals (the “Court”) ruled that the FWW method, as explained in 29 C.F.R. § 778.114(a), must be used to calculate the overtime wages due, since the employees in this case understood that they were to be paid a fixed salary for the total number of hours they worked each week, even though the number of those hours may fluctuate from week to week. As such, the Court reversed the district court’s decision, and remanded the case back to the district court to make a recalculation using the correct method.