Court Rules RadioShack's Overtime Pay Practices Violate Pennsylvania Law

Earlier this month, a federal judge in Philadelphia ruled that RadioShack violated Pennsylvania law by using the “fluctuating workweek” method of calculating overtime. Under the fluctuating workweek method, employees receive a fixed rate of pay each week regardless of the actual number of hours worked. For any hours worked over 40 in a given workweek, each employee receives only one-half of his or her rate of pay, instead of the customary one and one-half times the regular rate of pay, as required under the usual method of calculating overtime.

Although the fluctuating workweek method is permissible under federal law if certain conditions are satisfied, the United States District Court for the Eastern District of Pennsylvania ruled in the case of Verderame v. RadioShack that the fluctuating workweek method violated Pennsylvania state law.

What Is the Fluctuating Workweek Method of Calculating Overtime?

Although the Fair Labor Standards Act requires that employees must be paid time and one-half pay for all hours worked over 40 in a workweek, the Department of Labor’s regulations set forth an alternative method for calculating overtime for certain salaried workers who are legally required to receive overtime pay.

Under the fluctuating workweek method, employers pay a salaried employee whose hours of work fluctuate from week to week a fixed amount of pay per week, regardless of the number of hours worked. In a week an employee works over 40 hours, overtime is paid at one-half the regular rate, instead of one and one-half times the rate. The regular rate of hourly compensation will vary from week to week depending on the number of hours actually worked and is calculated by dividing the number of hours actually worked into the amount of the straight time salary for the workweek, instead of dividing the salary by 40 hours.

How Did RadioShack’s Overtime Policy Not Comply with the Law?

The plaintiff in the case, David Verderame, worked for RadioShack for approximately 10 months in 2012 as a store manager. RadioShack classified him as non-exempt from the overtime requirements of the Fair Labor Standards Act and the Pennsylvania Minimum Wage Act. RadioShack paid Mr. Verderame a weekly salary and calculated his overtime pay using the fluctuating workweek method, as it did for more than 100 of its other employees.

RadioShack described this overtime policy in its “Non-Exempt Store Manager Compensation Plan” which stated:

The Pennsylvania Minimum Wage Act, however, specifically provides that “employees shall be paid for overtime not less than one and one-half times the employee’s rate.” Unlike the Fair Labor Standards Act, the Pennsylvania Minimum Wage Act does not contain language authorizing the use of the fluctuating workweek method of overtime calculation.

Attorneys for RadioShack argued that the language of the Pennsylvania Minimum Wage Act requiring companies to pay overtime at a rate of one and one-half regular rate of pay is “mathematically vague.”

Disagreeing with RadioShack’s interpretation of the law, the judge presiding over the class action ruled, “while RadioShack’s plan may be permissible under the Fair Labor Standards Act, it cannot be reconciled with the plain language of the Pennsylvania Minimum Wage Act.”

The judge concluded that although the fluctuating workweek method of calculating overtime, “may be lawful under the baseline federal regulation, the same cannot be said as applied to the more employee-friendly Pennsylvania regulation.”

In related news, Moody’s Investor Services issued a warning this week stating that RadioShack may run out of cash by November 2015 and that the company is likely to face a liquidity crisis in the near future. RadioShack’s stock has plummeted to $0.62 per share in recent days and, if the company is unable to get its share price above $1 in the next six months, officials from the New York Stock Exchange have stated that they will no longer allow the company’s shares to be traded on the venerable stock exchange.