Fluctuating Workweek Method of Overtime Pay Found Unlawful under Pennsylvania’s Minimum Wage Act

By: Lisa M. Schonbeck, Esq.

Judge Cathy Bissoon of the U.S. District Court for the Western District of Pennsylvania (“Western District”) recently ruled that the fluctuating workweek method permitted under the federal Fair Labor Standards Act (“FLSA”), which Kraft Foods utilized to compensate its employees, was impermissible under the Pennsylvania Minimum Wage Act (“PMWA”).  Foster v. Kraft Foods Global, Inc., 2012 U.S. Dist. LEXIS 121282 (W.D. Pa. Aug. 27, 2012).

The Background

Under the FLSA, employers are permitted to pay non-exempt employees a fixed, weekly salary, regardless of the number of hours worked in the workweek. This weekly salary is intended to cover all hours worked by the employee in the workweek, including overtime hours worked. Under this method, the employer may pay those employees one-half times their regular rate for the hours worked over forty (40) in a workweek. This method of overtime compensation is commonly referred to as the fluctuating workweek method (“FWW method”), and is expressly permitted under federal law.

The PMWA contains no language addressing the FWW method for computing overtime compensation. In Foster v. Kraft Foods, a former employee challenged Kraft’s use of the FWW method, asserting that it was in conflict with Section 231.43(d)(3) of the PMWA, which regulates overtime compensation and requires that employees are paid at “a rate not less than one and one-half times” their regular rate of pay.

The Holding

In this case, the Court was faced with the question whether employers in Pennsylvania are permitted to utilize the FWW method available under federal law. Judge Bissoon rejected Kraft’s argument on summary judgment that its FWW method was lawful under Section 231.43(d)(3) of PMWA because it was based on an agreement with its employees. Instead, Judge Bissoon held that regardless of any underlying agreement, Section 231.43(d)(3) “expressly requires overtime payment at a rate of one and one-half times the regular rate.” Despite the fact that the FLSA permits employers to use the FWW method, the Court denied Kraft’s motion for summary judgment on the grounds that Kraft’s FWW method paid employees less than the amount mandated under the clear language of the PMWA.

Why Is This Decision Important?

Judge Bissoon’s decision in Foster v. Kraft Foods is a prediction of how the Pennsylvania Supreme Court would decide the issue of whether the FWW method is available under the PMWA. In light of this holding, however, Pennsylvania employers who continue to utilize the FWW method may be subject to liability under the PMWA. Further, the Foster case serves as an important reminder that employers must comply with both the FLSA and applicable state wage and hour laws.

Leech Tishman’s Employment Practice Group has experience handling complicated overtime pay issues and other wage and hour issues and is available to assist your organization in ensuring that your current policies regarding overtime pay do not violate state or federal law.

Lisa Schonbeck is an associate at Leech Tishman and practices in the Employment and Litigation Practice Groups.  Lisa can be reached at 412.261.1600 x 233 or lschonbeck@leechtishman.com.  Please feel free to contact Lisa with any questions regarding how employees should be compensated for working overtime.

Leech Tishman is a firm dedicated to providing full-service commercial legal services to individuals, businesses, and institutions.  We combine a deep understanding of our clients and their businesses with skilled legal counsel to find solutions.  We offer legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employment, energy, environmental, safety & toxic torts, estates & trusts, government relations, insurance coverage & corporate risk mitigation, litigation, real estate, and taxation.  For more information call 412.261.1600 or visit www.leechtishman.com.