On August 17, 2017, the Connecticut Supreme Court unanimously held in Williams et. al. v General Nutrition Centers, Inc. that the federal fluctuating workweek (“FWW”) method for paying overtime cannot be used for retail employees.

Basic Facts and the Court’s Ruling

In Williams, the plaintiffs were managers at GNC stores who were paid a base salary plus a commission.  GNC paid the plaintiffs overtime using the FWW method. This method is recognized under the federal Fair Labor Standards Act (FLSA) as an alternative to paying non-exempt employees overtime based on time and one-half their regular rate of pay. Under this method, there must be a “clear mutual understanding” that the employee will be paid a fixed salary that serves as compensation for all hours worked, which must fluctuate from week to week. The employee must then be paid an additional one-half of the regular rate for all overtime hours.  The FLSA regulations provide the following example:

During the course of 4 weeks, an employee whose salary is $600 works 40, 37.5, 50, and 48 hours.  Accordingly, the regular hourly rate of pay in each of these weeks is $15.00, $16.00, $12.00, and $12.50, respectively. Since the employee has already received straight-time compensation on a salary basis for all hours worked, only additional half-time pay is due. For the first week the employee is entitled to be paid $600; for the second week $600; for the third week $660 ($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25, or 40 hours at $12.50 plus 8 hours at $18.75).

This example illustrates how, under the FWW method, an employee’s regular rate and, correspondingly, the overtime rate, decreases as the employee works more hours.   The Court ruled that the FWW method is unlawful for retail employees because the Connecticut Department of Labor (DOL) promulgated a wage order specifically requiring that mercantile employees be paid overtime based on the conventional method of paying overtime.

Impact for Employers

Connecticut employers can no longer use the FWW method of paying overtime for employees who work in the mercantile trade.  The Supreme Court stated that Connecticut’s wage and hours laws do not specifically prohibit the FWW method for employees who do not work in the mercantile trade. However, the Connecticut DOL has not adopted any regulations that specifically permit the FWW method to be used. While Connecticut generally follows the FLSA, it remains to be seen whether this decision will trigger lawsuits seeking to challenge the FWW method for other groups of employees.  Connecticut employers using the FWW method for other employees should assess their risks of continuing to do so, and should monitor further developments in this area.