Caveat Employer: Beware Texas Courts’ Differing Approaches to Calculating Damages in Misclassification Suits

05 January 2011 Labor & Employment Law Perspectives Blog

When an employer fails to pay overtime compensation to an employee who was misclassified as exempt from the Fair Labor Standards Act (the “FLSA”), the damage award can be extremely large.  There are two different methods of calculating how much the employer owes, and Texas courts disagree as to which is the proper approach.  This disagreement is significant because when applied to the same facts, the two approaches result in extremely different amounts.

The traditional method is to pay the employee’s overtime hours at “time and a half.”  The other is known as the “fluctuating workweek” approach and limits the employee’s damages to a smaller premium for overtime hours.  While neither the FLSA nor the regulations explicitly state the fluctuating workweek approach should be used to calculate damages in a misclassification suit (it is usually a tool for minimizing overtime at the hiring stage), the Department of Labor, the Fifth Circuit, and the Southern District of Texas have all approved of doing so.  However, the Western District of Texas has rejected using the fluctuating workweek in this way.  This disagreement among the courts makes valuing cases and evaluating settlement offers problematic, because it is uncertain what damages an employee could ultimately recover in a misclassification suit.

The Supreme Court may resolve the issue, though.  On December 2, 2010, a plaintiff in a misclassification suit whose damages were calculated according to the fluctuating workweek standard requested that the Supreme Court review the award* and rule that the fluctuating workweek is an inappropriate method of calculating damages.  The Supreme Court has not yet decided whether it will hear the case, so in the meantime, employers are well advised to avoid these kinds of lawsuits altogether by regularly reviewing their employees’ positions and duties to make sure they are not misclassifying employees.

* The Seventh Circuit’s opinion is styled Urnikis-Negro v. American Family Property Services, 616 F.3d 665 (7th Cir. 2010).

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