Labor and Employment Law Weekly Update

20 June 2011 Publication
Author(s): Daniel A. Kaplan Christina M. Kennedy

Legal News: Employment Law Update

Finally — A Little Good News From the Supreme Court for Employers
By Daniel A. Kaplan

The decisions from the United States Supreme Court have been less than friendly to employers during the past several years. The expansion of retaliation claims and what may support such claims are a prime example. However, this past week, the Supreme Court issued a decision in Fox v. Vice, U.S. No. 10-114 (June 6, 2011) ( recognizing a defendant’s right to recover fees and costs for a frivolous claim even where the plaintiff also has asserted a non-frivolous claim.

The Court resolved a split among the federal appellate courts on how (and whether) to allocate attorneys’ fee awards when a civil rights case involves claims with arguable merit and claims with absolutely no merit whatsoever. The latter claims are commonly known as “frivolous claims.”

Most employers recognize that even when they are successful in defending against civil rights litigation (claims of discrimination), they have had to expend a great deal of money for that “honor.” They also recognize that this money is rarely, if ever, recoverable — it becomes a cost of doing business — and sometimes a very hefty cost. This is because in most discrimination cases, attorneys’ fees and costs are recoverable only by a successful employee. Successful employers cannot recover their fees and costs unless the claim is frivolous, and even then, when an employee made both a frivolous and a non-frivolous claim, the employer could not recover in some courts. That is no longer the case.

Supreme Court Justice Elena Kagan ( wrote for a unanimous Court that when an employee’s suit involves both frivolous and non-frivolous claims, a court may award the employer the costs and fees incurred in defending against the frivolous claim. This is great news, but it is not without some limitations. According to the Court, the amount of fees and costs recoverable cannot extend beyond those that are reasonable and were otherwise incurred because of the frivolous claim — that is, only those reasonable fees and costs that would not have been incurred but for the frivolous claim are recoverable.

In an age when victories for employers in an increasingly litigious society come at large costs, even a small return is better than none at all.

New Regulations Could Put an End to Bonus Payments for Fixed-Salary, Fluctuating Workweek Employees
By Christina Kennedy

The fixed-salary, fluctuating workweek method of payment has become an attractive option to many employers. The model permits employers to pay non-exempt employees at one-half of their regular rate of pay for any hours worked over 40 in a week, instead of at time and one-half that they would otherwise would have to pay. The “regular rate” is determined by dividing the employee’s weekly salary by the total number of hours worked in the week. Because an employee’s hours vary from week to week, so does the “regular rate.” Although an employee’s overtime rate decreases with each hour worked, the fluctuating workweek provides predictability for both the employer and employee.

However, recent action by the Wage and Hour Division of the U.S. Department of Labor (Division) ( calls into question whether this model can work for employers who also pay their employees bonuses. In comments to the final rule ( issued by the Division clearing up issues in the regulations relating to various wage-hour issues, the Division rejected language regarding the fluctuating workweek method of payment that would have stated that, in addition to the fixed salary, an employee also could be paid bonuses without invalidating the fluctuating workweek pay method.

The Division stated that “bonus and premium payments ... are incompatible with the fluctuating workweek method of computing overtime” and, while it acknowledged that bonus payments benefit employees, the Division concluded that the proposed clarifying language “could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of the employees’ compensation into bonus and premium payments.” This unintended effect, according to the Division, could have resulted in a “wide disparity in weekly pay that the fluctuating workweek method was intended to avoid.”

The Division’s position may render the fluctuating workweek model invalid for employers who also pay bonuses or other premiums. Under the Division’s interpretation, payment of such bonus or premium amounts would eliminate an employer’s ability to use the fluctuating workweek method, meaning the employer will have to calculate the overtime rate based on 40 hours and a time-and-one-half overtime rate. The revised regulations took effect on May 5, 2011. Until this issue is clarified by the courts or by the Division, employers should refrain from paying bonuses to employees paid according to the fluctuating workweek model.

Legal News is part of our ongoing commitment to providing legal insight to our clients and colleagues. If you have any questions about or would like to discuss these topics further, please contact your Foley attorney or the authors of this week’s issue.

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