The opinion of the court was delivered by: REBECCA PALLMEYER, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs Alphonse L. Perez and Douglas G. Phillips filed suit
against Defendant RadioShack Corporation under the Fair Labor
Standards Act ("FLSA"), 29 U.S.C. § 207 et seq., seeking to
recover overtime pay on behalf of an "opt-in" class of persons
who routinely worked more than 40 hours per week as "Y store"
managers. RadioShack insists that Y store managers are exempt
from such overtime pay because they are "employed in a bona fide
executive . . . capacity." 29 U.S.C. § 213(a)(1). Under the
"short test" applicable in this case, an individual qualifies as
an exempt executive if (1) his or her primary duties are
management of the enterprise or a subdivision thereof; and (2)
the employee regularly and customarily directs the work of two or
more other employees within that enterprise or subdivision
thereof. 29 C.F.R. § 541.1(f) (July 1, 2004).*fn1 On June 13, 2003, the court allowed Plaintiffs to proceed with
notice to persons who had the option of affirmatively choosing to
participate in, and be bound by the outcome of this lawsuit.
Perez v. RadioShack Corp., No. 02 C 7884, 2003 WL 21372467
(N.D. Ill. June 13, 2003). In that opinion, however, the court
did express doubts about Plaintiffs' ability to satisfy the first
prong of the short test, noting that they "face an uphill battle
in arguing that management was not their primary duty." Id. at
*7. As discovery evolved, it became clear that at least some
class members did not supervise two or more full-time workers as
required under the second prong of the short test. Thus, on
September 9, 2005, the court announced its determination to grant
immediate relief to all Y store managers who do not meet the
second prong of the test for exemption, which the court defined
as those who did not supervise 80 or more hours of subordinate
time at least 80% of the time. Perez v. RadioShack Corp.,
386 F. Supp. 2d 979 (N.D. Ill. 2005), reconsideration denied,
(Order of 11/2/05, Doc. No. 360).
The parties now dispute the proper method of calculating the
overtime wages due to this subset of Plaintiffs (the "Subclass
Plaintiffs"). RadioShack urges the court to apply the
"fluctuating workweek" method of calculating overtime and award
the Subclass Plaintiffs one-half their regular rate of pay for
each hour worked over 40 in a week. See 29 C.F.R. § 778.114.
The Subclass Plaintiffs argue that their overtime should be
calculated at a rate of one-half their regular rate of pay for
all overtime hours worked up to 54, which represents the number
of hours their salary is intended to compensate each week. After
that, the Subclass Plaintiffs claim, they should be paid at a
rate of one and one-half times their regular rate for all hours
worked beyond 54 per week. For the reasons set forth here, the court finds that the proper
method of calculating overtime compensation must be determined on
an individual employee basis.
Under the FLSA, non-exempt employees are generally entitled to
overtime pay at a rate of one and one-half times their regular
rate of pay for all hours worked in excess of 40 per week.
29 U.S.C. § 207(a)(1). For employees paid by the hour, this
calculation is relatively simple. Plaintiffs here, however, are
paid on a salary basis, and also receive commissions and bonuses.
Where an employee is paid on a salary basis, the regular hourly
rate is determined by "dividing the salary by the number of hours
which the salary is intended to compensate." 29 C.F.R. § 778.113.
The employee then receives one and one-half times that regular
rate of pay for all hours worked in excess of 40 per week.
An exception applies where employees have hours of work that
fluctuate but receive a fixed salary for all straight-time hours
worked. 29 C.F.R. § 778.114. In such cases, the regular hourly
rate is determined by dividing the fixed weekly salary by the
number of hours the employee actually works in a particular week.
The employee then receives one-half his or her regular rate of
pay for all hours worked over 40 per week. Id.; Condo v. Sysco
Corp., 1 F.3d 599, 605 (7th Cir. 1993) ("The fixed salary
compensates the employee for all his hours, the overtime ones
included. He therefore receives 100% of his regular rate for
each hour that he worked. As such, he is entitled only to an
additional fifty percent of his regular rate for the hours that
he worked in excess of forty.") (emphasis in original).
For employees who receive commissions or bonuses, the
regulations provide as follows:
To compute this additional overtime compensation, it
is necessary, as a general rule, that the commission
be apportioned back over the workweeks of the period during which it was earned. The employee must then
receive additional overtime compensation for each
week during the period in which he worked in excess
of the applicable maximum hours standard. The
additional compensation for that workweek must be not
less than one-half of the increase in the hourly rate
attributable to the commission for that week
multiplied by the number of hours worked in excess of
the applicable maximum hours standard in that
29 C.F.R. § 778.119.
The Subclass Plaintiffs insist that the fluctuating workweek
method cannot apply here because RadioShack has not satisfied the
necessary prerequisites. Specifically, the Subclass Plaintiffs
claim that they were not always compensated at the minimum wage
rate, they did not have a clear mutual understanding regarding
their payment, and they did not receive any extra compensation at
the time they worked overtime hours. Even if the fluctuating
workweek method does apply, the Subclass Plaintiffs argue, the
court should adopt the alternative overtime calculation set forth
in Cowan v. Treetop Enterprises, 163 F. Supp. 2d 930 (M.D.
As described above, the Subclass Plaintiffs believe they are
entitled to recovery of one and one-half times their hourly pay
for all hours worked in excess of 40 per week. RadioShack argues
that the Subclass Plaintiffs' unpaid overtime compensation should
be calculated pursuant to the fluctuating workweek method set
forth in 29 C.F.R. § 778.114. As explained in the regulation,
employers may utilize this method only if the employer can show:
(1) the employee's hours fluctuate from week to week; (2) the
employee receives a fixed weekly salary that remains the same
regardless of the number of hours worked per week; (3) the fixed
salary is sufficient to provide compensation at a regular rate
not less than the legal minimum wage; (4) the employee receives
at least 50 percent of his regular hourly pay for all overtime
hours worked; and (5) the employer and the employee have a clear
mutual understanding that the fixed salary is compensation (apart
from overtime premiums) for the hours worked each workweek. Id.
See also Condo, 1 F.3d at 601-02. The Subclass Plaintiffs
contend the third and fifth requirements are not met here. The Subclass Plaintiffs argue, further, that the
regulations also impose a sixth requirement: that the employee
receive, contemporaneously with his or her work hours, "extra
compensation, in addition to [his or her] salary, for all
overtime hours worked at a rate not less than one-half his [or
her] regular rate of pay." 29 C.F.R. § 778.114.
A. Compensation at Minimum Wage
The Subclass Plaintiffs argue, first, that RadioShack is not
entitled to the "fluctuating workweek" determination because the
salaries class members received from RadioShack did not
compensate them at a level equal to or above the applicable
minimum wage rate $5.15 per hour in their longest workweeks.
29 C.F.R. § 778.114(a); 29 U.S.C. § 206(a)(1).*fn3 The
Subclass Plaintiffs claim, for example, that from 1999 through
2001, the base salary for Y store managers was $21,000 per year,
and that class members routinely worked in excess of 80 hours per
week. (Pl. Mem., at 4.)*fn4 An annual salary of $21,000
divided by 52 weeks equals a weekly salary of $403.85. Any Y
store managers who worked 79 or more hours in a given week thus
received less than the applicable minimum wage in that week (at
79 hours per week, an employee earning a $21,000 annual salary is
compensated at $5.11 per hour). The Subclass Plaintiffs direct
the court to an exhibit showing that a combined list of class
members worked in excess of 80 hours per week a total of 2,642
times between 2000 and 2004. (Ex. 2 to Pl. Mem.) The exhibit does
not indicate, however, whether all Y store managers were in fact
earning $21,000 per year.
RadioShack counters that Y store managers working in stores
with annual sales of $1 million actually earn $24,000 per year.
In addition, employees receive additional "tenure pay" ranging from $1,000 to $8,000 per year. (Def. Supp., at
3.)*fn5 Class members in certain markets also receive an
increase in salary to account for higher costs of living, ranging
from $1,700 to $7,500 per year. Finally, all Y store managers are
eligible for bonuses and commission payments. (Id.) The
Subclass Plaintiffs deny that bonuses and commissions are
included in calculating fixed salary, and argue that even
assuming a base salary of $28,000 per year, "there are still at
least 49 instances where the salary fell below the minimum wage."
(Pl. Reply, at 2, 4; Ex. 2 to Pl. Mem.)*fn6
The Department of Labor has issued an opinion letter stating
that a fluctuating workweek may apply as long as an employee's
base salary actually provides an employee with an average hourly
rate not less than the applicable minimum wage, or "is reasonably
calculated to" do so. 27 Op. Wage and Hour Admin. 945 (1969)
("Opinion Letter 945"); Cash v. Conn Appliances, Inc.,
2 F. Supp. 2d 884, 894 (E.D. Tex. 1997). This last phrase means that
the employee will not become eligible for overtime pay merely
because there are "infrequent occasions when unforeseen events
cause the employee to work so many hours that her salary fails to
support an average hourly rate at least equal to the minimum
wage." Cash, 2 F. Supp. 2d at 894. If the breaches become too
common, however, the employer must cease using the fluctuating
workweek method and reach a new understanding with the ...