Following the Pennsylvania Eastern District Court’s decision in Verderame v. RadioShack, RadioShack must pay about $5.4 million in back pay to its non-exempt employees for a violation of the Pennsylvania Minimum Wage Act (“PMWA”), even though RadioShack’s employee pay practices were perfectly fine under the federal Fair Labor Standards Act (“FLSA”).
How could this happen? How can you prevent an attack of this magnitude on your organization?
How it Happened
Simply stated, RadioShack did not apply the right law to pay its salaried, non-exempt workers.
As you may already know, non-exempt employees are those employees who are protected by the minimum wage and overtime requirements of the FLSA. In other words, non-exempt employees must be paid an hourly wage and are eligible for overtime pay. The federal Department of Labor, however, graciously allows employers to pay non-exempt employees a salary, even for a fluctuating workweek. Although the FLSA allows this salary to cover all hours that the non-exempt employee works, overtime still must be paid at a rate of one-half times the employees’ “regular rate” for all hours worked over 40.
To shed light on what can be a confusing law, the Department of Labor provides the following example: Where an employee earns a salary of $600 for the week and works 50 hours, her “regular rate” is 600/50, or $12. Overtime is calculated by adding an extra half-time ($6) for each of the 10 hours worked over 40, with the result being a total salary for the week of $660. The following week, that same employee works 60 hours per week, with a salary of $600, thus her “regular rate” for that week is 600/60, or $10. Overtime then is calculated by adding an extra half-time ($5) for each of the 20 overtime hours worked, with the result being a total salary for the week of $700. As you can see, this pay practice could be highly advantageous to an organization that depends on non-exempt works.
RadioShack, using the FLSA fluctuating workweek law, employed over 100 Pennsylvania non-exempt workers, all of whom were paid a salary. As allowed under the FLSA, overtime was calculated at one-half times the regular rate and RadioShack, under the federal law, paid employees appropriately.
However, on July 10, 2014, the Eastern District, in the class action case of Verderame v. RadioShack, brought by over 100 Pennsylvania RadioShack employees, held that RadioShack underpaid its salaried, non-exempt employees under Pennsylvania law. Because this case involved Pennsylvania workers, the Pennsylvania Minimum Wage Act (“PMWA”), an employee-friendly law, applied in addition to the federal law. While the PMWA does allow for the fluctuating workweek “regular rate” calculations of the FLSA, the PMWA does not consider the overtime hours worked to be covered by the salary. To demonstrate the contrast between the two laws, here is an example: Where a Pennsylvania employee earns a salary of $600 for the week and works 50 hours, her “regular rate” is 600/50, or $12. Overtime then is calculated by adding 1.5 times ($18) for each of the 10 hours worked over 40, with the result being a total salary for the week of $780, as opposed to the $660 required applying the FLSA under the same circumstances. Obviously, it is advantageous to be a Pennsylvania worker.
Because of the discrepancy between what is owed under the FLSA and the PMWA, as applied to over 100 workers, RadioShack was responsible for about $5.4 million in back pay.
How to Keep This from Happening to Your Organization
Understand both federal and state employee pay laws. Generally speaking, the PMWA is more expansive than the FLSA. Whenever the PMWA gives employees more pay benefits than they would receive under the FLSA, the PMWA applies. Likewise, where the FLSA gives employees more protection, the FLSA applies. Therefore, before implementing any employee pay policies, consult with an attorney knowledgeable in state and federal employee pay law.
Bottom Line
Education prevents litigation; the best advice is to learn how to properly implement the applicable wage laws before a lawsuit. In the employee-friendly state of Pennsylvania, employers should not assume that the FLSA applies to every situation. Conversely, employers should not assume that the PMWA applies in every situation.
The Eastern Pennsylvania Employment Log (EPELog) is a publication of the KingSpry Employment Law Practice Group. Jeffrey T. Tucker, Esquire, is our editor-in-chief. EPELog is meant to be informational and does not constitute legal advice.
