“… and God So Loved Employers, He Gave Them The Fluctuating Workweek Method.”

From the “don’t look a gift horse in the mouth” desk, the Seventh Circuit recently saved an employer from a holy terror of a damages award (a solemn promise: each pun in this blog will be better than the next) in Urnikis-Negro v. Am. Family Prop. Servs.pdf, 2010 U.S. App. LEXIS 16126 (7th Cir. Aug. 4, 2010). Ms. Urnikis-Negro (“Ms. U-N”) left her prior position for a job with her pastor who, quite naturally, was also a real estate appraiser and–surprise!–an individual defendant in the case. The pastor, Todd Lash (endearingly referred to herein as “Pastor Todd”), testified that he was tired of being of a real estate appraiser who also pastored, and longed instead to be a pastor who also appraised real estate. To pursue this “higher calling,” Pastor Todd hired Ms. U-N to answer telephones, schedule appointments, proofread paperwork, and assorted other tasks. It seems that there was plenty of such work to keep Ms. U-N occupied, as she frequently worked 12 hours per day during the workweek and an additional 6 hours every other weekend. She was not paid overtime for these hours because, according to Pastor Todd, she was administratively exempt.

For reasons unbeknownst to us, and perhaps only beknownst to Ms. U-N and Pastor Todd, Ms. U-N was fired by Pastor Todd shortly before he was indefinitely suspended from real estate appraisal work. (The facts behind these developments, though omitted from the Seventh Circuit’s decision, are almost certainly more interesting than anything else in the case.) Surprisingly, Ms. U-N sued shortly thereafter. Perhaps equally astounding, the trial court (yes, this actually went to trial) did not share Pastor Todd’s unique take on the FLSA’s administrative exemption. It held that Ms. U-N should have been treated as non-exempt and that she was owed back pay for her overtime hours. Relying on the Book of DOL Chapter 29, Verse 114 (….please, make it stop), however, the trial court found that Ms. U-N’s annual salary of $52,000 was intended to provide straight time wages for all hours she worked. As a result, the court held, Pastor Todd only owed her half-time for her claimed overtime hours (i.e., the “fluctuating workweek” or “half-time” method), which reduced Ms. U-N’s back pay award to $24,466 rather than the $111,787.50 she was claiming. This was not pleasing in the eyes of Ms. U-N, who apparently had already broken ground on her mansion in the sky. And lo, she did shout her displeasure to the mountain tops of the Seventh Circuit.

The Seventh Circuit affirmed, a result that we applaud with all of our hearts and souls. (Yes, we have both.) But, somewhat concerning is the fact that the court traveled through Hades and back to get to this fairly unsurprising conclusion. More specifically, the Seventh Circuit held that 29 C.F.R. 114 does not authorize the use of the half-time method in calculating damages in a misclassification case. Yet, despite rejecting application of the fluctuating workweek regulation, the court affirmed the trial court’s calculation based on the Supreme Court’s decision in Overnight Motor Transp. Co. v. Missel.pdf, 316 U.S. 572 (1942). Why, you might ask, is this so odd? Because, in addition to being older than Methuselah, the Supreme Court’s Missel decision is the basis upon which the DOL promulgated the half-time regulation that the Seventh Circuit rejected. So, after rejecting the applicability of the half-time regulation, the Seventh Circuit went back to the same source and reached the same conclusion it would have reached simply by applying the regulation in the first place. Strange days, indeed.

The bottom line: What does it all mean in the end? Well, we sincerely doubt that Pastor Todd will borrow a trick from Martin Luther and nail a list of these issues to the door of the Seventh Circuit. And, as good-hearted management lawyers, we’re always happy to see one of our capitalist brethren win one for the Gipper, especially an entrepreneur of Pastor Todd’s ilk and stature. But, some of the court’s logic has our spider-sense a-tinglin’, especially in light of what’s at stake. Imagine a collective action with just 150 opt-in Ms. U-Ns. A half-time award would result in a verdict of about $3.7 million, which is admittedly a pretty big communion wafer. But, if the half-time method is rejected, that figure ascends to almost $17 million. That, my friends, is eternity in a lake of fire.

So, take heed! Make sure that your employment records confirm, with trumpets blaring, that an exempt employee’s salary is intended to compensate her for all hours worked. Say it in thine offer letters, and in thine raise letters, and in thine beasts of the field. While it might end up being overkill, it may be your “Get Out Of Purgatory Free” card if you get sued.