Strauch v. Computer Sciences Corp.

          RULING ON REMEDIES

          Janet Bond Arterton, U.S.D.J.

         In this action, the jury found Defendant Computer Sciences Corporation ("CSC") liable for overtime exemption misclassification of Plaintiffs, who are current and former Associate Professional and Professional System Administrators (collectively, "SAs") employed by Defendant. Both parties have briefed a number of legal disputes on the legal and equitable remedies to which Plaintiffs are entitled, which the Court now addresses.

         I. Background

         The Court assumes the parties' familiarity with the procedural history of this action, most recently summarized in the Court's September 21, 2018 ruling denying Defendant's Motion for Judgment as a Matter of Law and Motion to Decertify the Rule 23 California and Connecticut classes and Fair Labor Standards Act collective. ([Doc. # 476].) On October 22, 2018, Defendant appealed from the September 21 ruling together with "all [previous] adverse rulings subsumed therein," also "reserv[ing] the right to supplement this notice of appeal in light of future orders from this Court on Remedies[.]" (Not. of Appeal [Doc. # 477] at 1-2.)

         II. Discussion

         1. Flexible Work Week Methodology

         Defendant contends that "as a matter of law and consistent with the majority position on the issue-and with the direction the Second Circuit clearly signaled in the 2016 Banford decision-the Court should apply the fluctuating workweek ("FWW") method of calculating overtime." (Def.'s Br. on Damages [Doc. # 448] at 1.) Particularly in light of the jury's finding that CSC proved that it and Plaintiffs "had a clear, mutual understanding that their fixed salaries were intended as compensation (apart from overtime premiums) for the hours worked each workweek[, ]" (Supp. Verdict Form [Doc. # 442-1]), Defendant argues that "there is no proper basis to abandon the widely accepted FWW method to calculate overtime damages for the FLSA collective and Connecticut class on a 'half-time' premium basis." Moreover, Defendant contends that "[b]ecause this question was put to the jury at Plaintiffs' insistence, Plaintiffs waive any argument that the FWW method should not apply." (Def.'s Br. on Damages at 1.)

         As an initial matter, Defendant's argument that Plaintiffs "insiste[d]" that the FWW question be put to the jury lacks basis in the record. Rather, Plaintiffs consistently took the position that because the applicability of the FWW method "is a matter of statutory interpretation, it is a legal question for the Court." (Pis.' Resp. to Def.'s Pretrial Mem. [Doc. # 369] at 5.) Notwithstanding that position, during trial Plaintiffs agreed with Defendant and the Court that in the event of a Plaintiffs' verdict on liability, and in light of the absence of any binding authority making clear whether this question was one of law or of fact, the question should be put to the jury to avoid the inefficiency that would result if, after trial, the question was later determined by the Second Circuit or the Supreme Court to be one of fact that should have been put to the jury. (See Ex P. (Trial Tr.) to Sagafi Decl. at 1033:25-1037:4 [Doc. # 457-16].) Thus the Defendant's waiver argument lacks merit, and the Court will address this legal dispute between the parties.

         In the 2016 Banford summary order referenced by Defendant, the Second Circuit noted that the other circuits that had taken up the question had "found that FWW may be used to calculate damages where, as here, employees were misclassified as exempt from the FLSA," while noting a split between "district courts within this circuit... on whether FWW may be applied retroactively at all." Banford v. Entergy Nuclear Operations, Inc., 649 Fed.Appx. 89, 91 (2d Cir. 2016) (citations omitted). In Banford, the Second Circuit expressly declined to resolve this question because "the record evidence support[ed] the jury's verdict that no plaintiff agreed to a fixed weekly salary covering unlimited hours[.]" Id.

         Here, by contrast, the jury found that Plaintiffs did agree "that their fixed salaries were intended as compensation (apart from overtime premiums) for the hours worked each workweek[, ]" (Supp. Verdict Form), so the Court must determine whether, in light of that factual finding, the FWW may be applied in this case as a matter of law.

         As the Second Circuit noted in Banford, "[u]nder the FWW methodology for calculating overtime due under the FLSA to employees who have agreed to work at a fixed weekly salary but whose hours vary, an employee is assumed to have been paid for all hours worked at their regular rate of pay, with excess overtime due for hours worked over forty at one-half the regular rate of pay." 649 Fed.Appx. at 90. Under this methodology, "[t]he regular pay rate is calculated by dividing the weekly pay by total hours worked that week." Id. The FWW was first sanctioned as a method for calculating overtime in Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942). "Following Missel, the Department of Labor issued an interpretive rule, allowing payment under the FWW method where (i) 'there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek, whatever their number, rather than for working 40 hours or some other fixed weekly work period'; (ii) the employee receives sufficient salary so that his regular rate never falls below the statutory minimum wage; and (iii) the employee 'receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay.'" Banford, 649 Fed.Appx. at 91 (quoting 29 C.F.R. § 778.114(a).).

         In the years immediately before and after Banford, several district courts within the Second Circuit considered the question of whether the FWW methodology can ever be applied in FLSA actions for unpaid overtime where, by definition, plaintiff employees allege that they have not been contemporaneously paid overtime, as required by the Department of Labor's interpretive rule.^[1] See 29 C.F.R. § 778.114(a) ("Where there is a clear mutual understanding of the parties that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek ... such a salary arrangement is permitted by the Act... if [the employee] receives extra compensation, in addition to such salary, for all overtime hours worked at a rate not less than one-half his regular rate of pay")

         The most recent case within this circuit to address this question observed that this "question of law... remains unsettled in this circuit." Nelson v. Sabre Companies LLC, No. 115CV00314BKSTWD, 2018 WL 3543523, at *12-14 (N.D.N.Y. July 23, 2018). The Nelson court found the dispute over the number of hours the annual salary was intended to cover created a triable issue for a jury determination and declined to address whether the FWW methodology could be used in misclassification cases where overtime was never paid, "[i]n light of the split among district courts in this circuit and the absence of Second Circuit authority[.]" Id. at 14.

         Here, there is no question that Plaintiffs were not contemporaneously paid any such "extra compensation" for overtime, so the FWW method cannot be applied under the DOL's interpretive rule codifying the method, which expressly requires the contemporaneous payment of overtime in order to establish the method's applicability. See 29 C.F.R. § 778.114(a). For this reason, another court in this district held that "the proper damages calculation method is the 'time-and-a-half method and not the 'half-time' method for all hours worked over 40." Costello v. Home Depot USA, Inc., 944 F.Supp.2d 199, 208 (D. Conn. 2013). In Costello, the court rejected the employer's argument that Missel did not explicitly require the contemporaneous payment of overtime premiums. Id. at 207. This conclusion that Missel itself requires the contemporaneous payment of overtime in order for FWW to apply rested on three conclusions: first, that holding otherwise would mean that an employee could "waiv[e] his entitlement to overtime payment, which is, simply, illegal[, ]" id. (citations omitted); second, that Missel in fact "does mention failure to include a provision regarding contemplation of payment of overtime as a reason for rejecting the contract at issue in that case[, ]" id. (citing Hasan v. GPM Investments, LLC, 896 F.Supp.2d 145, 150 (D. Conn. 2012); and third, that the employer's "reading of Missel and the FLSA plainly run counter to the policy implications of that case and the statute itself [, ]" id. at 208.

         In Hasan, the district court noted that Missel had "reasoned that the contract at issue did not comply with the FLSA because 'it [did not include a] provision for additional pay in the event the hours worked required minimum compensation greater than the fixed wage.'" 896 F.Supp.2d at 150 (quoting Missel, 316 U.S. at 581). Relying on Hasan, Costello concluded that "[t]his lends further support to the argument that section 778.114 accurately reflects the holding of Missel" and "that an employee cannot achieve a clear, mutual understanding as to whether a fixed salary is intended to cover all hours worked unless that understanding includes some provision for the payment of overtime; without it, there is no understanding as to an 'agreed wage' under Missel." Costello, 944 F.Supp.2d at 207 (quoting Missel, 316 U.S. at 581).

         In contrast, another district court within the Second Circuit read Missel as not imposing any requirement of contemporaneous payment of overtime premiums and concluded that "when an employee has been misclassified as exempt from overtime protections and the parties have mutually agreed that a flat weekly wage would compensate the employee for all his hours, no matter their number, Missel provides the correct method to calculate overtime damages: the effective wage should be calculated by dividing the flat wage by the total hours worked." Klein v. Torrey Point Grp., LLC, 979 F.Supp.2d 417, 438 (S.D.N.Y. 2013). The Klein court agreed with other courts within this circuit that "the DOL regulation, on its own terms, may not be used to calculate overtime payments in the context of a misclassified employee" because "a misclassified employee did not, by definition, receive overtime premiums during his employment[, ]" as required by the regulation, but nonetheless held that overtime payments in this context could be calculated using FWW under Missel. Id. at 436-38.

         Plaintiffs argue, in line with Costello's reading of Missel, that "[a] FWW contract cannot exist here for the same reason that the contract in Missel was found to be unlawful: CSC, like the employer in Missel, never paid an overtime premium, which is a requirement of a FWW contract." (Pis.' Br. on Remedies [Doc. # 449] at 5-6.) The Court finds Plaintiffs' reading of Missel to be more persuasive, in light of the Supreme Court's characterization of its holding in Missel in a different decision issued on the same day.

         In ruling against the employer in Missel, the Court noted that

It is true that the wage paid was sufficiently large to cover both base pay and fifty per cent additional for the hours actually worked over the statutory maximum without violating section six. But there was no contractual limit upon the hours which petitioner could have required respondent to work for the agreed wage, had he seen fit to do so, and no provision for additional pay in the event the hours worked required minimum compensation greater than the fixed wage. Implication cannot mend a contract so deficient in complying with the law. This contract differs from the one in Walling v. A. H. Belo Corp.,316 U.S. 624, 62 S.Ct. 1223, 86 L.Ed. 1716, decided today, where the contract specified an hourly rate and not less than time and a half ...