By Jacob Oslick

Seyfarth Synopsis: Does Pennsylvania law permit the fluctuating workweek (“FWW”) method of paying overtime? The Pennsylvania Supreme Court has answered that question with a resounding “No, but…”

In Chevalier v. Gen. Nutrition Centers, Inc., the Supreme Court finally tackled whether the Pennsylvania Minimum Wage Act (“PMWA”) aligns with the federal Fair Labor Standards Act, and permits paying overtime to salaried non-exempt workers on a “half-time” basis (i.e., paying 50% of an employee’s regular rate for overtime, instead of paying 150%). The Supreme Court concluded that it did not. In so doing, the Supreme Court adopted the view enunciated both by Pennsylvania’s Superior Court (an intermediate appellate court) and by several federal district court opinions. But the Supreme Court’s opinion comes with certain qualifiers, of which employers should take note.

To begin with, the Supreme Court did not disturb the Superior Court’s finding that the “regular rate” for salaried workers is not based on a 40 hour workweek, but instead fluctuates with the actual number of hours worked. For example, if an employee earns a $1,200 a week salary and, in one week, works 50 hours, the “regular rate” for that week would be $24 an hour ($1,200 divided by 50) — entitling the employee to an overtime rate of $36 an hour for the 10 overtime hours that week. If, the next week, the employee works 60 hours, the “regular rate” would only be $20 an hour ($1,200 divided by 60) — entitling the employee to an overtime rate of only $30 an hour for the 20 overtime hours that week. This fluctuation of the regular rate makes paying overtime significantly more affordable for employers. So, although the “half-time” method is now verboten under Pennsylvania law, Pennsylvania employers may still reap some of benefits associated with the FWW, if they pay salaries to non-exempt workers who work varying hours.

To be clear, the Pennsylvania Supreme Court didn’t quite bless calculating overtime rates based upon actual hours worked. It just didn’t address this question, because the Chevalier plaintiffs conceded the issue on appeal. And, as Justice Sallie Mundy noted in her concurrence, “a future case may present the issue, and this Court may reach a contrary result.” But, for the foreseeable future, the Superior Court’s affirmed decision in Chevalier, which recognized the permissibility of using the “actual hours worked” method, will bind Pennsylvania trial courts. That should provide comfort to employers who use this method.

Additionally, the Supreme Court’s opinion may offer an escape hatch to certain employers who want to pay overtime on a “half-time” basis. But it is a risky one. The Supreme Court recognized, per the PMWA’s regulations, that employees paid on a “day or job rate basis” can be paid overtime using a “0.5 Multiplier.” To qualify for this payment method, such an employee must be “paid a flat sum for a day’s work or for doing a particular job without regard to the number of hours worked in the day or at the job” and must “receive[] no other form of compensation for services.” There is virtually no case law interpreting the PMWA’s “day’s work” provision. Arguably, the regulation covers all employees whose salaries are quoted on a daily basis. If so, then it is not difficult for an employer to frame an employee’s wages as “$200 a day” instead of “$1000 a week.” But the restriction that such employees “receive[] no other form of compensation for services” should give employers pause. Read literally, it could exclude any employee who receives health care, retirement, other fringe benefits, or periodic bonuses. Without any clarity on this issue from Pennsylvania courts, employers should think twice before trying to get around Chevalier’s holding by paying daily salaries.

The Pennsylvania Supreme Court’s decision in Chevalier stands in contrast to the Trump Administration’s efforts to promote the FWW method. The Trump Administration issued a proposed rule clarifying that employees can qualify for the FWW method even if they receive bonuses and other premium payments in addition to their salaries. But Pennsylvania is not alone in its hostility to the FWW method. While most states follow the federal model, a few others, including California and New Mexico, have prohibited it. For this reason, employers who wish to pay under the FWW method should consult competent counsel both to ensure the legality of this method in the jurisdictions in which they operate, and to confirm that their employment arrangements satisfy the procedural requirements for using the FWW method (such as a clear agreement that a salary covers all hours worked).