Overtime calculation in court crosshairs

In April the Pennsylvania Supreme Court heard arguments in a 2013 lawsuit brought by salaried employees against their employer, General Nutrition Centers.

The dispute centers on the calculation of overtime hours, as workers felt they were entitled to more pay under the Pennsylvania Minimum Wage Act than what they were given under the federal Fair Labor Standards Act.

Between 2009 and 2011, General Nutrition Centers paid its retail managers a fixed weekly salary, based on a fluctuating number of hours worked.

Employees can benefit because they are paid a guaranteed sum each week. And if they work more than 40 hours, they are still eligible for overtime pay for each additional hour, facts acknowledged by both parties in the lawsuit.

However, the two sides split over how to calculate the overtime pay.

General Nutrition Centers, or GNC, started by dividing employees’ weekly salary by the total number of hours worked to come up with an hourly rate.

GNC calculated the overtime pay based on adding half-time – using a multiplier of 0.5 – for the additional hours over 40, instead of time and a half, or 1.5. The company reasoned that employees already were being paid the 1.0 per the FLSA for the hours beyond 40, according to court documents.

The employees felt they were entitled to the full 1.5 for any hours beyond the first 40, in addition to their regular salary (see sidebar, “Doing the math”).

In 2017, Superior Court sided with employees.

The court said the company should have used the more generous multiplier of 1.5 to arrive at overtime pay under state law. However, the court also ruled that a fluctuating workweek is legal under state law, as was GNC’s method for calculating the regular pay rate.

Part of the reason calculations can vary is due to a lack of information from state authorities, according to one small-business advocate.

The Pennsylvania Department of Labor and Industry has never clearly defined how to calculate overtime for a fluctuating workweek, according to Gordon Denlinger, state director of the National Federation of Independent Business in Pennsylvania.

“Businesses of all types and sizes have made their best efforts at correct calculations,” he added. “The fluctuating workweek method has been utilized by a wide range of employers, and all types of industries could be impacted by the court’s final determination of method.”

Labor and Industry does, however, specify that employers should “follow the rule that provides the greater benefit to the employee where there are differences between the two laws.”

Adam Long, an attorney from McNees Law in Harrisburg explained that while this isn’t technically a law, it is a requirement.

“It’s more simply the reality of having federal and state laws that cover the same issues and are not identical in their requirements,” he said.

A ruling in GNC case, however, could set clearer guidelines on calculating overtime for a fluctuating workweek.

If it loses, GNC would have to pay $1.7 million in backpay to workers. And the decision could expose other employers to significant liability as well.

“If an employer fails to pay an employee properly, it could result in liquidated damages based upon the amount due and owed plus attorneys’ fees under state and federal law,” Ed Easterly, an attorney at Hoffman Hlavac & Easterly in Allentown. “Employers must also be mindful that the law is ever changing and that new regulations regarding paying employees properly come out frequently.

Denlinger expressed concern for independent businesses.

“Day-in and day-out, small business owners make good-faith efforts to comply with all compensation laws and with our state’s overtime laws, which are clearly confusing and vague,” he said. “A decision that results in significant payouts will lead to business closures and the loss of some number of jobs.”

In the meantime, the safest bet may just be not using the half-time calculation for a fluctuating workweek until a determination is made.

“Relatively few employers use the fluctuating workweek method in PA because of the uncertainty,” Long said. “If you use it you could be creating a liability.”