Some Second Circuit Authority Regarding the Calculation of Overtime Damages in Flsa Misclassification Case

To calculate unpaid overtime wages under the FLSA, one must first determine the employee’s “regular rate” of pay for the relevant work weeks. See 29 U.S.C. § 207(a)(1). For salaried employees, such as the ICs here, the rate “is computed by dividing the salary by the number of hours which the salary is intended to compensate.” 29 C.F.R. §778.113(a). Importantly, it is improper for a court to simply “assume as a fact that the weekly salary was intended to compensate the [salaried employees] for however many hours they actually worked.” Rodriguez v. Farm Stores Grocery, Inc., 518 F.3d 1259, 1269 (11th Cir. 2008); see also Giles v. City of New York, 41 F. Supp. 2d 308, 316-17 (S.D.N.Y. 1999) (“The fact an employee regularly works 60 or more hours does not, without more, indicate that the employee’s weekly salary was intended to include the FLSA overtime premium for all hours in excess of 40.”); Yourman v. Dinkins, 865 F. Supp. 154, 165 (S.D.N.Y. 1994) (“Plaintiffs’ hourly rates are supposed to be determined by reference to the parties intent.”).

Courts within the Second Circuit held that “there is a rebuttable presumption that a weekly salary covers 40 hours; the employer can rebut the presumption by showing an employer-employee agreement that the salary covers a different number of hours.” Giles v. City of New York, 41 F. Supp. 2d 308, 317 (S.D.N.Y. 1999); accord Jiao v. Chen, 2007 U.S. Dist. LEXIS 96480, *45 (S.D.N.Y. Mar. 30, 2007); Doo Nam Yang v. ACBL Corp., 427 F. Supp. 2d 327, 334-35 (S.D.N.Y. 2005); Keun-Jae Moon v. Joon Gab Kwon, 248 F. Supp. 2d 201, 207 (S.D.N.Y. 2002). Thus, “[u]nless the contracting parties intend and understand the weekly salary to include overtime hours at the premium rate, courts do not deem weekly salaries to include overtime premium for workers regularly logging overtime, but instead, hold that weekly salary covers only the first 40 hours.” Giles, 41 F. Supp. 2d at 317.

New York District Courts have followed Giles in calculating the overtime wages owed to salaried employees. For example, in Aguilar v. E-Z Supply Corp., 2008 U.S. Dist. LEXIS 112585, *8-9 (E.D.N.Y. Mar. 13, 2008), the district court followed the 40-hour methodology because the defendant defaulted and, therefore, could not counter the rebuttable presumption that the weekly salary covers 40 hours.
Applying the above principles to this lawsuit, it is unlikely that Defendant can defeat the 40-hour rebuttable presumption discussed in Giles and other New York district court cases. Simply put, there is no “employer-employee agreement that the salary covers a different number of hours.” Giles, 41 F. Supp. 2d at 317. Here, Defendant admits that it does not have a specific agreement as to how many hours their salary is intended to compensate them for working. See Moore Dep. (Ex. C) at 120:02-120:07. In fact, Defendant’s corporate designee assumes that an IC’s salary is for a 40-hour work week. Id. (testifying that 2,080 hours annually (52 weeks X 40 hours per week) is “what I am accustomed to as a full-time role”).
Notwithstanding the above, Defendant contends that ICs’ regular pay rate is arrived at by dividing the weekly salary by all hours worked and that the IC is merely entitled to an extra payment equaling one-half of the regular rate for all hours worked over 40. While this methodology has been endorsed by some courts, it is inconsistent with the approach taken by courts within the Second Circuit, as demonstrated by Giles and the other decisions referenced above.

Moreover, New York district courts have refused to adopt Defendant’s preferred methodology in the absence of specific evidence that Defendant can actually satisfy each of the requirements codified in the DOL’s Fluctuating Workweek Method (“FWM”) regulation, including the requirement of a “clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number.” 29 C.F.R. § 778.114. For example, in Dingman v. Friedman Fisher Associates, P.C., 3 F. Supp. 2d 215 (N.D.N.Y. 1998), Judge Kahn refused to apply the FWM after holding that a misclassified salaried employee was entitled to overtime pay. See id. at 221. Instead, Judge Kahn used the 40-hour methodology. See id. at 222. Likewise, in Yourman, supra, Judge Preska refused to apply the FWM and elected, instead, “to fall back on the FLSA’s default position, which is to calculate hourly and overtime rates based on a regular workweek consisting of a fixed number of hours.” Yourman, 865 F. Supp. at 165.

Judge Kahn’s holding in Dingman is consistent with the analysis of other district courts which have flatly refused to apply the FWM methodology to compute damages in overtime misclassification cases. As these courts cogently explain, because the FWM applies to non-exempt employees and requires the actual payment of overtime premium compensation, it is simply impossible to satisfy the FWM’s requirements for an employee who (due to his exempt classification) did not contemporaneously receive any overtime pay. See, e.g., Russell v. Wells Fargo and Co., 672 F. Supp. 2d 1008, 1013-17 (N.D. Cal. 2009); Hunter v. Sprint Corp., 453 F. Supp. 2d 44, 58-62 (D.D.C. 2006); Scott v. OTS Inc., 2006 U.S. Dist. LEXIS 15014, *32-39 (N.D. Ga. Mar. 31, 2006); Cowan v. Treetop Enters., 163 F. Supp. 2d 930, 941-42 (M.D. Tenn. 2001); Rainey v. American Forest & Paper Assoc., 26 F. Supp. 2d 44, 58-62 (D.D.C. 1998).

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