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Pennsylvania Federal District Court Strikes Down “Half-Time” Overtime Pay

Did you know that some employers pay overtime at a “half-time” rate rather than “time-and-a-half”? Many workers are surprised to learn that this may be permissible under the Fair Labor Standards Act (“FLSA”) and analogous state wage and hour laws. A recent decision from a federal district court in Pennsylvania has held otherwise, finding that half-time overtime pay does not pass muster under the Pennsylvania Minimum Wage Act (“PMWA”).

First, some background on the FLSA and the so-called “half-time” method of overtime pay. On June 25, 1938, Congress enacted the FLSA, creating a maximum number of hours an employee could work without receiving overtime compensation. The FLSA was enacted to eliminate labor conditions that are detrimental to the health, efficiency, and general welfare of workers. In his message to Congress urging passage of the Act, President Roosevelt explained that the Act was intended to ensure workers “a fair day’s pay for a fair day’s work” because “[a] self-supporting and self-respecting democracy can plead no . . . economic reason for chiseling workers’ wages or stretching workers’ hours.” The FLSA constituted Congress’s determination that employment should be spread among many workers and work hours should be limited to a reasonable number. The FLSA accomplishes these twin goals by requiring employers to pay employees time-and-a-half when an employee works over 40 hours in a week.

The time-and-a-half overtime “premium” required by the FLSA is thus intended to penalize employers that concentrate work in the hands of fewer employees, requiring those employees to work more hours. The intended purpose of the time-and-a-half overtime requirement was that employers would act in an economically rational manner by limiting employees’ workweeks to 40 hours wherever possible, and hiring additional employees whenever necessary, thus reducing unemployment.

There is an exception to the time-and-a-half overtime requirement called the fluctuating workweek method (“FWW”) of calculating overtime pay. This method is also known colloquially and derogatively as “Chinese overtime” or “half-time.” Under the FWW method of overtime pay, an employee is only paid one-half a worker’s hourly rate for all hours worked over forty per workweek. This results in a perverse situation where, as the Supreme Court recognized, the more hours an employee works, the less overtime pay the employee receives, because the overtime rate decreases as the number of hours increase, causing the regular rate to decrease. See Overnight Motor Co. v. Missel, 316 U.S. 572, 580 (1942) (noting strict fixed salary requirement because “the longer the hours, the less the rate and the pay per hour”). The FWW method has naturally proven popular among employers paying overtime pay because it enables employers to pay employees substantially less than time-and-a-half a worker’s hourly rate.

With that as background, now back to the recent decision from the United States District Court for the Western District of Pennsylvania, Foster v. Kraft Foods Global, Inc., CIV.A. 09-453, 2012 WL 3704992 (W.D. Pa. Aug. 27, 2012), that analyzed the FWW method of overtime pay in relation to the PMWA. In Foster, the defendant argued that the:

FWW method complies with the … PMWA’s [1 and½ times] requirement because the employee’s weekly salary is intended to compensate Plaintiff for all hours worked … [, including] overtime hours. Thus, the employee receives the “time” for each hour worked by receiving a weekly salary and is only entitled to the “and a half” of her regular rate for hours worked in excess of forty. Once the half is paid, the employee has received the full time and one-half for all overtime hours.”

Id. at * 5.

The court noted that while this is the rationale used to justify the FWW method under the federal regulations that implement the FLSA, the language of the PMWA differed from the FLSA because it does not reference half-time pay. Thus, the court held that “payment of overtime under the FWW method, at any rate less than one and one-half times the “regular” or “basic” rate, is impermissible” under the PMWA. Id.

The end result is that workers in Pennsylvania now have another good decision to point to support their claims for time-and-a-half overtime. Moreover, the twin purposes of the FLSA and state wage and hour laws – to reduce unemployment by spreading work among many workers, and to limit work hours to a reasonable number – have now been lent increased support in Pennsylvania.