Wage and hour lawsuits continue to hound employers, with more than 8,000 new federal class actions alleging improper payment filed in 2016 alone. Now the Connecticut Supreme Court has issued a ruling that threatens even employers that scrupulously follow the federal Fair Labor Standards Act (FLSA) and its associated regulations with the risk for substantial liability under Connecticut law. Retail employers that use the “fluctuating workweek” method of calculating overtime pay will need to quickly alter those practices in Connecticut or face potential liability for improperly calculated overtime payments.
Under the FLSA, employers must pay nonexempt employees one and one-half times their “regular rate” for all hours worked in excess of forty in a given workweek. Connecticut law has a nearly identical requirement. If an employee is paid a single hourly rate, then calculating the overtime rate is relatively simple—the regular rate is the normal hourly rate. However, if an employee is paid a mix of an hourly rate and commission payments and the employee’s hours vary week to week, then the calculation becomes more complicated. While federal regulations under the FLSA permit an employer to use a fluctuating workweek method of calculating overtime pay in such circumstances, retailers in Connecticut will not be able to do so following the recent decision in Williams v. General Nutrition Centers, Inc., 2017 WL 3575105 (Conn. Aug. 17, 2017).
When commissions are a component of an employee’s weekly compensation, the employer must include such commission payments in the calculation of the employee’s regular rate from which the overtime rate is calculated. Under the federal regulations, the commission is to be added to the employee’s other earnings for that workweek and “the total is divided by the total number of hours worked in the workweek to obtain the employee’s regular hourly rate for the particular workweek.” 29 CFR § 778.118. The federal regulations then provide that the employer must pay the employee “extra compensation at one-half of that rate for each hour worked in excess of the applicable maximum hours standard.” Id.
In the Williams case, General Nutrition Corporation (GNC) followed these federal regulations in calculating the overtime rates applicable to its salespeople, who were paid a combination of hourly and commission payment and often worked in excess of forty hours in a workweek. Two GNC employees sued the company claiming, for themselves and other similarly situated employees, that this federally sanctioned fluctuating workweek calculation method was not allowed under Connecticut law. The Connecticut Supreme Court held that while such calculations were generally legal under Connecticut law, the provisions of a 1970 “wage order” applicable to the “mercantile trade” required a different calculation for the GNC employees at issue.
The Connecticut wage and hour statutes do not directly address the appropriate method of calculating regular rate for purposes of calculating overtime in circumstances involving commissions. Therefore, the Supreme Court held that the federal method was generally acceptable for employers in Connecticut. However, the Connecticut statutes also allow the Department of Labor to enact wage orders that apply to specific industries. One such wage order, issued in 1970, applies to the mercantile trade, defined as “the trade of wholesale or retail selling of commodities and any operation supplemental or incidental thereto.” Conn. Agencies Regs. § 31-62-D1. That wage order specifically addresses the method for calculating a regular hourly rate for employees in that industry, providing that the regular rate “shall be determined by dividing the employee’s total earnings by the number of hours in the usual workweek as supported by time records.” Conn. Agencies Regs. § 31-62-D4. This is in contrast to the federal regulatory direction to divide by the “total number of hours in the workweek.”
The Supreme Court, therefore, held that in the mercantile trade the proper divisor for determining the regular rate is not the specific number of hours worked in the particular workweek but rather the number of hours in “the usual workweek as supported by time records.” The Connecticut Supreme Court noted that the question of what was any given employee’s “usual workweek” was a question of fact that would need to be addressed by the trial court.
The determination of a usual workweek will likely be difficult for many retail employers. The fact that the wage order requires that the usual workweek be supported by time records indicates that such a determination would need to look at actual experience rather than a blanket rule. It is unclear whether an employer must make such a determination on an individual basis or on the basis of some group of employees. Similarly, it is unclear whether such a determination involves an averaging over some time period or some other method—the most common workweek over some period, perhaps. These and other questions will likely be resolved in future litigation.
Attorneys who bring wage and hour class action lawsuits will undoubtedly be looking for new cases under this interpretation of the law. Employers in the mercantile trades that use the federal method in Connecticut should move quickly to modify their practices and thus limit, as much as possible, their exposure to such claims. In particular, employers will need to decide how to determine the number of hours in the usual workweek as supported by time records in the absence of clear guidance from the courts, which will itself be something that can be challenged in future litigation. While either the legislature or the Connecticut Department of Labor could solve these potential problems by modifying or explicitly repealing the wage order, in the absence of such action it is likely that retailers will find themselves facing lawsuits, absent a change in their calculation practice.