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).

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services