Opinion ID: 200756
Heading Depth: 4
Heading Rank: 1

Heading: the employee's hours must fluctuate from week to week;

Text: 25 (2) the employee must receive a fixed salary that does not vary with the number of hours worked during the week (excluding overtime premiums); 26 (3) the fixed amount must be sufficient to provide compensation every week at a regular rate that is at least equal to the minimum wage; and 27 (4) the employer and employee must share a clear mutual understanding that the employer will pay that fixed salary regardless of the number of hours worked. 28 § 778.114(a), (c); see also Flood v. New Hanover County, 125 F.3d 249, 252 (4th Cir.1997). 17 In this case, the officers dispute the second and fourth conditions: they contend that their compensation does vary under the CBAs with the number of hours worked, and that no clear mutual understanding existed that they would be paid according to the fluctuating workweek method. In considering these contentions, we follow the district court's example in relying on the CBAs, as neither party disputes that the Town in fact paid the officers according to the terms of those agreements. 29 After carefully reviewing the CBAs, we are persuaded that the officers are correct. This case does not fit the § 778.114 mold. It is true, as the district court emphasized, that each week the officers receive 1/52 of their annual base salary, irrespective of the number of shifts worked that week. But under the CBAs, that sum does not constitute all of the straight-time compensation that the officers may receive for the week. This is significant because by the plain text of § 778.114, it is not enough that the officers receive a fixed minimum sum each week; rather, to comply with the regulation, the Town must pay each officer a fixed amount as straight time pay for whatever hours he is called upon to work in a workweek, whether few or many.  (emphasis added). 30 The undisputed evidence indicates that the Town does not satisfy this requirement. The officers' compensation varies from week to week even without reference to the number of hours worked. Any officer required to work a nighttime shift receives money — expressly termed additional compensation under the CBA — in the form of a $10 shift-differential payment added to his check for the week. The Supreme Court has specifically held that such shift differentials, when paid, are part of the worker's regular rate of pay. Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 468-69, 68 S.Ct. 1186, 92 L.Ed. 1502 (1948). So while the shift differential itself may be small, it requires the larger conclusion that most officers do not receive a fixed amount for their straight-time labor each week. 31 The officers' weekly straight-time compensation also varies under the CBAs depending on the number of hours worked. This is because the officers receive extra pay for every hour worked beyond eight hours in a day, and for every hour worked on otherwise off-duty time, regardless whether their total number of hours worked for the week exceeds forty. The CBAs label such extra pay overtime, but that does not control. For purposes of the FLSA, all hours worked under the statutory maximum are non-overtime labor. See 29 C.F.R. § 778.101 ([A] workweek no longer than the prescribed maximum is a nonovertime workweek under the Act....); Reich v. John Alden Life Ins. Co., 126 F.3d 1, 7 (1st Cir.1997) (under FLSA, overtime means employment in excess of 40 hours in a single workweek). That the parties have by contract designated certain compensation for labor under the forty-hour threshold overtime does not affect the characterization of those payments under the FLSA. Cf. Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424-25, 65 S.Ct. 1242, 89 L.Ed. 1705 (1945) (Once the parties have decided upon the amount of wages and the mode of payment the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary `regular rate' in the wage contracts.). The regulations specifically explain how to treat such mid-workweek contractual overtime payments under the Act: only the premium portion of the contractual overtime rate (that is, the amount in excess of the employee's regular rate) is deemed overtime pay and may be offset against any statutory overtime liability in the same week. 18 See 29 C.F.R. §§ 778.201(a), 202(a); see also 29 U.S.C. § 207(e)(5) (excluding from the definition of regular rate all extra compensation provided by a premium rate paid for certain hours worked ... in excess of eight in a day); id. § 207(h) (permitting employers to offset such extra compensation against FLSA overtime liability). The remainder is simply considered straight-time compensation under the Act. 32 For this reason, the officers in this case do not receive a fixed amount as straight time pay for whatever hours [they are] called upon to work in a workweek, whether few or many. On the contrary, the officers receive more or less straight-time pay depending on how many contractual overtime hours they work each week. The CBAs require the Town to track each officer's hours for each day during the work-week and compensate him accordingly. This belies the Town's claim that it uses the fluctuating workweek method. The Seventh Circuit recently considered a similar arrangement and held that it did not comport with § 778.114: Every extra hour is calculated and paid for. That is incompatible with treating the base wage as covering any number of hours at straight time. Heder v. City of Two Rivers, 295 F.3d 777, 780 (7th Cir.2002). 19 We agree. 33 The Town contends that it is simply paying the officers more generously than the FLSA requires. We are unpersuaded. Section 778.114 applies only if there is a clear mutual understanding that the employee's fixed salary is compensation for however many hours the employee works during the week. Admittedly, this does not require that the employee understand or give actual consent to the employer's method of calculating overtime. Valerio, 173 F.3d at 40. In this case, however, the Town's method of calculating overtime is premised on assumptions inconsistent with § 778.114. Neither the CBAs nor the Town's methods of calculating pay rates indicate that the parties reached a clear mutual understanding that the officers would work varying numbers of hours each week in exchange for a fixed sum. 34 We hold that the compensation scheme embodied in the CBAs does not comply with § 778.114. 35