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PEREZ v. RADIOSHACK CORPORATION

December 14, 2005.

ALPHONSE L. PEREZ and DOUGLAS G. PHILLIPS, individually, and on behalf of all others similarly situated, Plaintiffs,
v.
RADIOSHACK CORPORATION, Defendant.



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.

  DISCUSSION*fn2

  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 workweek.
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. Tenn. 2001).

  I. Fluctuating Workweek

  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 ...


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