Fluctuating Commissions Don’t Render Fluctuating Workweek Method Illegal

by Marylou V. Fabbo

A federal appeals court in Massachusetts recently gave a store manager a healthy dose of reality when it held that GNC’s compensation structure, which included a fixed salary, commissions and an overtime premium, complied with the fluctuating workweek method of calculating overtime permissible under both state and federal wage laws.

In Lalli v. General Nutrition Centers, Inc., __ F.3d __ (1st Cir. 2016), a GNC store manager alleged that his compensation structure violated the Fair Labor Standards Act (“FLSA) and the Massachusetts Wage Act. GNC paid its store manager a guaranteed salary each workweek regardless of the hours the manager worked, a weekly sales commission, and, when the manager worked more than 40 hours in a workweek, GNC also paid him an overtime premium. The overtime premium was calculated based on the fluctuating workweek (FWW) method of calculating overtime, which permits an employer to pay a half-time rate for any hour worked in excess of 40 hours in a workweek. To calculate the half-time rate, GNC determined the manager’s regular hourly rate by adding the manager’s guaranteed weekly salary to the commissions earned for the week and dividing by the total number of hours the employee worked. It then paid the employee 50% of that rate for all overtime hours. Still, the employee argued that because his commissions varied from week to week, GNCs method was not compliant with the FWW method as that method requires that the employee be paid a fixed amount for the week. He filed suit in federal court claiming that he should have been paid one and one-half his regular rate for all overtime hours.

The First Circuit disagreed with the manager and affirmed the trial court’s dismissal of his lawsuit. The Court held that the FWW method required employers to pay employees a fixed salary each week, regardless of hours worked. The fact the employee received additional compensation above and beyond that amount did not affect the validity of the FWW method. In Goodrow v. Lane Bryant, Inc., 423 Mass. 165 (2000), the Massachusetts Supreme Judicial Court held that the fluctuating workweek method of calculating overtime also complies with Massachusetts wage law as long as there is a “clear mutual understanding” that the fluctuating workweek method is to be used.

With the Department of Labor’s anticipated increase in the minimum salary required to claim exempt status, employers will have to decide whether to bump the salaries of many employees’ who are currently classified as exempt or to reclassify them as non-exempt. The FWW method may provide some financial savings for employers who reclassify employees who do not hit the new salary threshold to non-exempt status as well as preserve the morale of employees who do consider themselves management and do not wish to be considered “hourly” employees.