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Overtime Cheating -- it just got more expensive if you get caught


Calling your secretary an "administrative" employee to cheat her out of overtime just got a lot riskier because of an opinion handed down Jan. 28 by the United States Court of Appeals for the Eleventh Circuit, which oversees federal trial courts in Florida, Georgia and Alabama.

Overtime law is simple. Generally, under the Fair Labor Standards Act, if someone works more than 40 hours a week, that person must be paid time-and-a-half for every hour over 40. Bona fide executive and administrative employees are exempt. And the fantasy of so many employers is that they can make non-exempt employees exempt just by labeling them as "managers."

In Rodriguez v. Farm Stores, Inc., management tried to classify as "managers" the lead workers in their drive-in dairy stores, when what they really did most was routine sales functions. The court held that if someone who is supposed to work 40 hours a week ends up working 50 hours a week, one calculates the "regular" hourly pay by dividing the weekly salary by 40 and calculates overtime pay by multiplying that hourly wage by 1.5, then again by 10, and in most cases then again by 2 for liquidated damages.

Here is an example: a $400-a-week salary, divided by 40, gives you a "regular (hourly) rate" of $10. Time-and-a-half would be $15. For 10 hours, that would be $150. And unless the employer can prove that it was operating in both objective and subjective good faith, that amount would be "liquidated," or doubled, by the court, resulting in a judgment for $300.

The jury instruction that the trial court had given in Rodriguez reflected a basic but widespread misunderstanding of how overtime is calculated. Under the trial judge's theory, and that of Farm Stores, the "regular rate" was determined by dividing the $400 in our example by all 50 hours, resulting in an hourly rate of $8 actually paid for each of the 50 hours worked. Since the 10 hours of overtime had already been paid at $8, all that would be owed would be $4 times 10, or $40. Even liquidated, that would only come to $80.

The method the trial judge used is the one commonly used for hourly employees who work what is referred to as a "fluctuating work week." That is not the approach, however, when someone is employed solely on a salary basis.

If the employee can prove that the violation was "wilful," that is that the employer knew it was breaking the law, the statute of limitations would reach back in capture underpayments for up to three years before the date the suit was filed. If not, the limitations period would be two years.

If the employer can prove that it operated in "good faith" - which generally means following instructions that it got from the Department of Labor - then it can avoid paying the liquidated damages.

However, while proof of either "willfulness " or "good faith" would negate the other, if the employee cannot prove "
" and the employer cannot prove "good faith," then the judgment will be for two years of back wages, doubled.

The Rodriguez court also made it very clear that the determination of whether someone qualifies as an "executive" or "administrative" employee is based on a fact-intensive inquiry into what is the person's principal duty. In Rodriquez, the court found, there was evidence that could support a jury's finding either way. But since the jury held the workers to be exempt, the court would not disturb its findings.

You can read the Rodriguez opinion on the Eleventh Circuit Court of Appeals web site. You can find out more about your rights as an employee or your obligations as an employer at the Department of Labor's FLSA Overtime Calculator Advisor. If you need in person advice, you can contact the employment lawyers at The Amlong Firm.

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