More than 75 years ago, just four years after the passage of the Fair Labor Standards Act (FLSA), the United States Supreme Court recognized what has now become known as the fluctuating work week (or “FWW”) as an alternative to the strict payment of overtime at time and a half. Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942). The general idea is that an employer guarantees a nonexempt employee a fixed amount of pay for the work week – whether over or under 40 hours – in exchange for paying overtime at half-time rates rather than at time and a half. The Supreme Court reasoned in 1942 that the arrangement had a mutual benefit to the employer and the employee: The employee was guaranteed a set amount for budgeting and planning purposes; the employer had some relief on overtime.

It took the U.S. Department of Labor (DOL) 28 years to issue regulations on the topic, at which time it came up with the label of “fluctuating work week.” 29 C.F.R. § 778.114. Since then, there have been numerous opinion letters and cases outlining when and when not the employer might take advantage of an FWW arrangement. We’ve previously blogged about some of those cases here and here.

While the FWW system itself involves what some might consider to be tricky math, the cases themselves drew unusual distinctions, including one 2010 Seventh Circuit case that found that the FWW under the regulation did not apply but that the employer could still take advantage of the FWW described in the Supreme Court’s 1942 Missel decision [link to Aug. 10, 2020, blog]. Some courts, reflecting dislike of FWW arrangements, invalidated them for purely technical reasons. These decisions and conflicts among the courts caused the DOL to issue a revised 29 C.F.R. § 778.114 in 2019 to make it clear that the FWW was still available even if the employee received bonuses and incentive pay in addition to the “guaranteed” fixed salary.

The Second Circuit has now weighed in on the issue of the application of the FWW when the employer has arguably failed to meet all the requirements. In Thomas v. Bed, Bath & Beyond Inc., Case No. 19-1647 (2d Cir. June 15, 2020), the plaintiffs were department managers for the defendant, the familiar home goods retailer. Each of them signed agreements acknowledging that they would be paid under the FWW method. They brought a collective action under the FLSA contending that various problems with its application resulted in their not receiving appropriate overtime. 

In affirming the grant of summary judgment for the employer, the Second Circuit rejected all those arguments. The court noted at the outset that out of 1,500 weeks’ worth of pay records, only six of those weeks appeared to present issues. As to those weeks, the court rejected the following as invalidating the FWW method:

  • Payroll errors later corrected by the employer.
  • A week in which a claimant’s employment ended midweek.
  • A deduction based on a negotiated unpaid vacation.
  • A reduction due to Family and Medical Leave Act leave.

Instead, the court focused on the notion that the fixed amount had to be “guaranteed” and found that the potential departures in a half-dozen instances did not violate that “guarantee.”

Similarly, while the plaintiffs argued that a “”fluctuating” work week meant that hours must routinely go above and below 40 hours per week, the court found no such requirement and distinguished a handful of mostly lower court decisions that had held to the contrary.

The Thomas decision is important not only because it was decided by a circuit court but because it recognized and upheld the FWW method despite arguable discrepancies. Thus, minor errors in administration did not invalidate the entire program. While employers relying on the FWW should continue to strive for full compliance, Thomas introduces at least a measure of common sense in judicial review. Note, however, that while the FWW is permissible under federal law, some states, most notably California, do not allow it.

The bottom line: Potential minor errors in the administration of a fluctuating work week should not invalidate the FWW program.