Abigail Ransom v. M. Patel Enterprises, Inc

Case: 12-50534 Document: 00512344480 Page: 1 Date Filed: 08/16/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 16, 2013
No. 12-50534 Lyle W. Cayce
Clerk
ABIGAIL F. RANSOM, Individually and on Behalf of Others Similarly
Situated; BONNIE KURZ, Individually and on Behalf of Others Similarly
Situated; LORI A. HOPMANN, Individually and on Behalf of Others
Similarly Situated; VERNON K. HENNEMAN, JR., Individually and on
Behalf of Others Similarly Situated; DANIEL W. OWINGS, Individually and
on Behalf of Others Similarly Situated,
Plaintiffs - Appellees Cross-Appellants
v.
M. PATEL ENTERPRISES, INCORPORATED, doing business as Party City,
doing business as Party Pig Superstore; MITESH M. PATEL; JAYMINI
AMIN, also known as Jaymi Patel,
Defendants - Appellants Cross-Appellees
Appeals from the United States District Court
for the Western District of Texas
Before REAVLEY, JOLLY, and SMITH, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
After a jury found Abigail F. Ransom and fifteen other executive managers
(collectively hereinafter, plaintiffs) of Party City, a retail chain, to be
misclassified by their employer as exempt from the Fair Labor Standards Act
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(FLSA), 29 U.S.C. § 201, et seq., the plaintiffs became eligible for an award of
overtime wages. Because the plaintiffs were paid a weekly salary, the trial court
had to compute their hourly rate of pay in order to award overtime damages.
Disregarding the so-called “fluctuating workweek” (FWW) method of
determining overtime damages – a method established by precedent and
relevant federal regulations as applicable in this case – the district court,
presided over by a magistrate judge, instead determined overtime damages by
using the magistrate judge’s unorthodox preferred methodology.1 The plaintiffs’
employer, M. Patel Enterprises, Incorporated2 (“Party City”), contends this
method of calculation was error, and we agree. We therefore REVERSE the
ruling of the district court, VACATE the amount of actual damages awarded to
plaintiffs as overtime and REMAND for recalculation. We further VACATE the
award of liquidated damages and the amount of attorneys’ fees and REMAND
for reconsideration.
I.
In this opinion, we will proceed as follows: First, we discuss the facts at
issue and the lower court proceedings leading to this appeal. Second, we
consider the standard of review and the specific employment arrangement
between the plaintiffs and Party City. Third, finding the district court’s factual
findings to be clearly erroneous, we sort through relevant FLSA background
principles and precedent, apply them to this case, and explain why they compel
the use of FWW in calculating the amount of overtime damages the plaintiffs are
due. Finally, we consider the plaintiffs’ cross appeal, as well as liquidated
damages and attorneys’ fees.
1
The parties consented to proceed before a magistrate judge for all purposes. 28 U.S.C.
§ 636(c)(1); FED R. CIV. P. 73(a).
2
Defendant-Appellant M. Patel Enterprises was an Austin-area owner of a Party City
franchise of stores.
2
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Because the basic question here can get lost in the weeds of the
regulations, the arguments, and the methods of calculation, we state its
simplicity: How much overtime pay does Party City owe to its employees under
the FLSA? By proceeding along the course outlined above, we will determine the
proper method of calculation and remand to the district court for computation
of the proper amount.
II.
This suit arose in Austin, Texas, where the plaintiffs were employed as
executive managers (EMs) at Party City retail stores. The plaintiffs filed a
collective action under the FLSA in 2010. They alleged that Party City had
misclassified them as exempt from the overtime provisions of the FLSA.
Furthermore, by paying them only a weekly salary that did not vary – even
when the plaintiffs had often worked weeks of irregular, consistently long
hours – Party City owed them overtime and additional hourly pay for such
workweeks. In due course, the case proceeded to jury trial, presided over by a
magistrate judge.3 On November 14, 2011, a jury found that Party City had
misclassified the plaintiffs as exempt from the FLSA and overtime pay; but the
jury also held that this FLSA violation was not willful.
In this appeal, neither party contests Party City’s liability as found by the
jury. Instead, the appeal centers on the trial court’s error in calculating the
overtime damages. In motions for summary judgment before the magistrate
judge, the plaintiffs argued for the so-called “EZPawn” method4 for calculating
3
The trial court had federal question jurisdiction under the FLSA, 29 U.S.C. § 201, et
seq., and 28 U.S.C. § 1331.
4
This method comes from In re EZPawn LP Fair Labor Standards Act Litig., 633 F.
Supp. 2d 395 (W.D. Tex. 2008), a decision written by the same magistrate judge that handled
this case. Generally speaking, this method computes an employee’s “regular rate” of pay, see
discussion infra, by dividing his weekly salary by 40, the number of hours in a standard
workweek. See, e.g., id. at 404 (providing an example of an overtime compensation calculation
utilizing a denominator of 40 in computing the regular rate). An overtime payment of 150%
3
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overtime damages, while Party City argued for the application of the FWW
method.5 The court denied each party’s motion for summary judgment. The
court held that “[d]etermining the proper overtime calculation method is a fact-
dependent inquiry, and the facts [we]re in dispute . . . .” Ransom v. M. Patel
Enters., Inc., 825 F. Supp. 2d 799, 810 (W.D. Tex. 2011). The district court,
however, found that “the parties have stipulated regarding the number of hours
worked by the Plaintiffs and the salary each was paid during the relevant
period . . . [that] there are no issues to send to the jury on damages.” Id. The
case then proceeded to trial on liability only.
The jury, as previously noted, found that Party City had misclassified the
plaintiffs as exempt from the FLSA. With the jury’s determination of FLSA
liability in hand, the court then turned to its responsibility: the calculation of
damages. The court’s analysis of actual damages focused on two related
questions: first, determining plaintiffs’ “regular rate” of hourly pay and, second,
how that regular rate should be used to compute the overall amount due to
of the regular rate for all hours worked over 40 during the workweek is then awarded. Id.5
29 C.F.R. § 778.114(a) provides an explanation of FWW:
An employee employed on a salary basis may have hours of work which
fluctuate from week to week and the salary may be paid him pursuant
to an understanding with his employer that he will receive such fixed
amount as straight time pay for whatever hours he is called upon to
work in a workweek, whether few or many . . . . Since the salary in such
a situation is intended to compensate the employee at straight time
rates for whatever hours are worked in the workweek, the regular rate
of the employee will vary from week to week and is determined by
dividing the number of hours worked in the workweek into the amount
of salary to obtain the applicable hourly rate for the week.
Id. The assumption of the FWW is that the weekly salary pays not just for the first 40 hours
worked at straight time pay, but also for all of the hours over 40 at straight time pay. This
means that the employee has received 100% of the straight time compensation for all of the
hours worked, and thus the only additional amount due is the 50% “overtime premium” for
hours over 40. See, e.g., Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1139 (5th Cir.
1988).
4
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plaintiffs. With regard to the first question, the magistrate judge divided the
plaintiffs’ weekly salary by 55, the number of hours the magistrate judge found
that the weekly salary was “intended to compensate.” See 29 C.F.R. §
778.113(a). As for the second question, he noted that the FLSA in its plain
terms required that a non-exempt employee be paid one and one-half times his
or her regular rate for all hours worked over 40, see 29 U.S.C. § 207(a), and then,
proceeding from this premise, the magistrate judge devised his own formula,
saying:
Given the finding . . . that the weekly salary is properly viewed as
payment for 55 hours of work, this means that for the hours from
zero to 40, Plaintiffs have been paid all they are entitled to; for
hours over 40 and up to 55, they have been paid only the regular
rate; and for hours over 55, they have not been paid at all. For the
purpose of calculating damages, the Plaintiffs are therefore entitled
to one-half the regular rate for each hour worked over 40 up to 55,
and for all hours over 55, the Plaintiffs shall receive one and one-
half times their regular rate.
Ransom v. M. Patel Enters., Inc., 2012 WL 242788, *2 (W.D. Tex. January 25,
2012). The court then used such formula to calculate the actual damages to
which the plaintiffs were entitled.
Finally, the court addressed the issue of liquidated damages and attorneys’
fees. Finding that Party City had failed to show a good faith attempt to comply
with the overtime laws, the district court awarded liquidated damages in an
amount equal to the actual damages. It further ordered Party City to pay legal
fees.
In summary, when judgment was entered for 14 of the plaintiffs,6 they
recovered (1) $66,250.20 in unpaid overtime, (2) $1,267.92 in unpaid minimum
wages, and (3) because the court found Party City’s violations were not in good
6
Although the suit originally involved 16 plaintiffs, two recovered nothing based on a
two-year statute of limitations for non-willful FLSA misclassifications. See 29 U.S.C. § 255(a).
5
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faith or reasonable, equal amounts as liquidated damages. The court also
awarded $331,880.00 in attorneys’ fees and $8,764.03 in costs and expenses. The
court entered final judgment on February 15, 2012, and both sides timely
appealed.
III.
Before we begin our analysis, we briefly turn to our standard of review.
The primary issue on appeal – the trial court’s calculation of total unpaid
overtime – is a mixed question of law and fact. Here, the number of hours the
plaintiffs’ fixed salary was intended to compensate, from which an employee’s
“regular rate” of pay (salary ÷ hours), is a question of fact; once the regular rate
of hourly pay been determined, the appropriate methodology to determine the
total amount owed, a question of law, is then applied. For non-jury issues in a
civil case, like the post-trial damage calculation proceeding here, this court
reviews conclusions of law de novo and findings of fact for clear error. See
Gabriel v. City of Plano, 202 F.3d 741, 745 (5th Cir. 2000); see also FED. R. CIV.
P. 52(a)(6) (stating that “findings of fact . . . must not be set aside unless clearly
erroneous”). When reviewing mixed questions of law and fact, this court
reverses only if the findings are based on a clearly erroneous view of the facts or
a misunderstanding of the law. Tokio Marine & Fire Ins. Co., Ltd. v. FLORA
MV, 235 F.3d 963, 966 (5th Cir. 2001). A factual finding is clearly erroneous
when, although there may be evidence to support it, the reviewing court on the
entire evidence is left with the definite and firm conviction that a mistake has
been committed. N.A.A.C.P. v. Fordice, 252 F.3d 361, 365 (5th Cir. 2001). As we
discuss below, the overwhelming evidence shows that the plaintiffs’ salary was
intended to compensate all hours worked, and that these hours would fluctuate.
Consequently, the magistrate judge’s calculation – which rejected the FWW
method – was based on a misunderstanding of the law and a clearly erroneous
view of the facts. See FLORA MV, 235 F.3d at 966.
6
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IV.
We now broach the most important issue in resolving this appeal – the
plaintiffs’ employment arrangement between them and their employer.7 Here,
the understood arrangement is not a written agreement that clearly lays out the
plaintiffs’ terms of employment, including the number of hours they were
required to work. The magistrate judge in calculating damages, however,
interpreted the parties’ mutual understanding to mean that the plaintiffs’ salary
compensated specifically for 55 hours per week. Yet the magistrate judge’s
expressed findings do not support such a view, and various parts of his opinion
indicate he ill-considered the purported 55-hour agreement in other ways as
well. In the following excerpt from his January 25, 2012 memorandum opinion
and order, he said:
Here, the evidence at trial demonstrates persuasively that the
parties did in fact discuss how many hours the weekly salary was
7
This matter is dispositive because the number of hours the plaintiffs worked each
week dictates the calculation of their regular rate of pay and thus determines the amount of
overtime damages the employer must pay.
To determine an employee’s “regular rate” of pay, we start with the basic premise that
the FLSA requires overtime compensation be paid to employees who work for more than 40
hours in a week, and this determination is made on a week-by-week basis. See 29 U.S.C. §
207(a) (stating that “no employer shall employ any of his employees . . . for a workweek longer
than forty hours unless such employee receives compensation for his employment in excess of
[forty hours] at a rate not less than one and one-half times the regular rate at which he is
employed.”). The term “regular rate” is not defined by statute, but is defined by regulation.
See 29 C.F.R. § 778.109 (“The regular hourly rate of pay of an employee is determined by
dividing his total remuneration for employment . . . in any workweek by the total number of
hours actually worked by him in that workweek for which such compensation was paid.”)
(emphasis added); accord, Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 580 n.16
(1942) (stating that “[w]age divided by hours equals regular rate.”). This general rule,
however, is slightly modified when an employee is paid a specific weekly salary for a specified
number of hours – that is to say, a non-fluctuating workweek: the regular rate is then
calculated by “dividing the salary by the number of hours which the salary is intended to
compensate.” 29 C.F.R. § 778.113(a) (emphasis added). Thus, when an employee receives fixed
pay for a specific number of predetermined hours (say, 40), the regular rate equals pay divided
by that same number of hours, see id., but when he receives fixed pay for unspecified hours
that fluctuate week by week, the regular rate equals pay divided by all hours actually worked
in the workweek. See 29 C.F.R. § 778.114(a).
7
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intended to compensate. Almost all the Plaintiffs who testified
stated that when hired they were told they would work a minimum
of 55 hours per week. On the work schedules, the Plaintiffs were
ordinarily scheduled to work 55 hours each week. The Plaintiffs
testified that while they worked varying hours, in a normal week,
they worked about 55 hours.
Ransom v. M. Patel Enterprises, Inc., 2012 WL 242788, *2 (W.D. Tex., January
25, 2012) (emphasis added).
Furthermore, the deposition testimony to which the plaintiffs look for
support fails to bolster the magistrate judge’s finding. In one example, Jodie
Herrera, Party City’s bookkeeper and unofficial office manager, testified that the
EMs at Party City “were expected to work 50 to 55 hours a week” (emphasis
added) and that Party City had said this “numerous times.” The plaintiffs and,
apparently, the magistrate judge, erroneously consider such testimony proof of
a standard 55-hour workweek, even though the testimony itself literally
suggests fluctuating hours (somewhere in the range of “50 to 55”). Other
testimony that the plaintiffs rely on follows this pattern. A former district
manager named Patti Tomasek, stated that the minimum hour requirement for
EMs was 55 hours. And in yet a further example, plaintiff Lori Hopmann
testified:
In the interview [for the position at Party City] I was told [I was
going to work] a minimum of 55 hours and typically that’s all it
would be. During Halloween, a couple of weeks would be over.
(Emphasis added.) The record is replete with statements from other employees
similar to Hopmann, Tomasek, and Herrera’s – that the minimum requirement
was around 50 or 55 hours but there would be weeks when employees would be
expected to work more. None of these statements establish that the EMs’ salary
was intended to compensate for a set 55-hour workweek. They simply suggest
that employees understood they would work “roughly” or “around” or a
“minimum” of 55 hours, not that their salary was meant to compensate for that
8
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“estimate” of only 55 hours. In sum, the type of evidence the magistrate judge
relied upon simply does not support a finding of a set 55-hour workweek.
Additionally, there is testimony that the magistrate judge’s finding does
not consider. Such testimony, in fact, clearly shows that employees knew their
hours would fluctuate and that their salary would not increase or decrease with
those fluctuations. For example, Ms. Hopmann, cited above, also testified that
her understanding was that her compensation was for any and all hours she
worked, not for 55 hours. At her deposition, she was asked:
Q. [Ms. Hopmann,] you knew when you were being hired that the
salary was going to cover the number of hours you worked,
regardless of how many hours you worked that week, right?
A. Yes.
Q. Okay. And you’ve verified that on your application, have you not,
that you knew the hours were going to change from week to week,
right?
A. Yes.
(Emphasis added.) Similarly, Bonnie Kurz, a plaintiff, testified that she
understood that her salary was meant to compensate her for fluctuating hours:
Q. . . . [D]uring the time you were [working at Party City], the hours
fluctuated, correct?
A. They did, sir.
Q. And when you were applying for the job, you expected those
hours to fluctuate; is that right?
A. Yes, sir . . .
Q. In [your job application], there’s a question. It says “can you
work a flexible schedule where days and number of hours scheduled
is different each week?” Did I read that correctly?
A. Yes, sir.
Q. And you circled yes?
A. Yeah.
9
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Q. So you knew that when you applied for the job?
A. Yes, sir.
The excerpts above and similar testimony establish that the plaintiffs
understood that the hours would fluctuate but their weekly salary would not.
Indeed, the record contains copies of the Party City employment application,
which the magistrate judge appears to have ignored entirely. The applications
state explicitly that “Party City stores . . . have extended business hours for
special events, store promotions, inventory, or holidays.” Applicants were asked
the question: “Can you work a flexible schedule where days and number of hours
scheduled is different each week?” (emphasis added).8 We fail to see how the
magistrate judge could have construed “flexible schedule” and “different number
of hours” to mean only and specifically “55.” Furthermore, our review of actual
weekly data reveals no more than a handful of times that any of the plaintiffs
worked a precise 55-hour week, and the workweek is more often 58 or 59 hours,
with hours occasionally falling well below 55. Thus, under either 29 C.F.R. §
778.113, which considers how many hours employees’ salary was intended to
compensate (here, all hours worked), or 29 C.F.R. § 778.114(a), which applies
FWW (and thus divides by all hours worked), the regular rate is not calculated
by the divisor of 55 utilized by the magistrate judge. Instead, it is computed by
dividing the salary by the number of hours the plaintiffs actually worked in a
given workweek. In sum, the magistrate judge clearly erred in finding as a fact
that the mutual understanding was for a workweek specifically and only for 55
hours; the workweek fluctuated and was intended to fluctuate. Only the salary
was fixed.
8
Indeed, no evidence showed that any employee had the understanding either that the
workweek was 55 hours, no more, no less, or that the salary was only for the first 55 hours of
work. Nor, as we have pointed out, was the magistrate judge able to make such a finding;
when his order is parsed, it even acknowledges that “[t]he Plaintiffs testified that . . . they
worked varying hours . . . .” Ransom, 2012 WL 242788 at *2 (emphasis added).
10
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V.
Having determined that the magistrate judge clearly erred as to the terms
of plaintiffs’ employment, we now turn to relevant precedent. In particular,
three significant court decisions confirm that, under the specific facts of this
case, the magistrate judge’s 55-hour methodology was error and that, on
remand, the court should apply FWW: one Supreme Court decision, Overnight
Motor Transp. Co. v Missel, 316 U.S. 572; our own precedent, Blackmon v.
Brookshire Grocery Co., 835 F.2d 1135 (5th Cir. 1988); and an analogous recent
Seventh Circuit opinion addressing similar facts, Urnikis-Negro v. Am. Family
Prop. Servs., 616 F.3d 665 (7th Cir. 2010).
A.
Missel provides the Supreme Court’s approach to a case like ours. In
Missel, the employee was paid a weekly wage for fluctuating hours; as with the
plaintiffs here, he received the same amount of compensation no matter how
many hours he worked. 316 U.S. at 574. Plaintiff-employee Missel brought suit,
alleging that he was entitled to overtime. The Court agreed, holding that
Missel’s weekly wage only compensated him straight-time pay for the hours he
worked and did not include an overtime premium due under the Act. Id. at 580.
The Court concluded that the “regular” rate of hourly pay was the weekly salary
divided by the number of hours worked each week. Id.Interpreting Missel to require a “fact specific inquiry” regarding damage
methodology, the magistrate judge found important the “facts that Missel . . .
had entered into a contract that Missel would work a fluctuating workweek and
that he worked under the agreement for several years.” Because there was no
similar written agreement here, the magistrate judge said Missel did not require
the use of FWW. This assumption was error. Although it is true that Party City
and the plaintiffs actually signed no written agreement, there was an agreement
– and there is no authority that requires the agreement to be in writing.
11
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Moreover, the job application clearly indicates, in writing, that Party City
employees understood their job included “flexible schedules” and “different
hours” each week.9
B.
Blackmon v. Brookshire Grocery Co., which, like Missel, is controlling
authority for resolving this case, reaffirmed our circuit’s approach to the
computation of unpaid overtime.10 835 F.2d 1135. The plaintiffs in Blackmon
were meat market managers claiming they were entitled to overtime from their
employer, Brookshire. Id. at 1136. The managers were employed by Brookshire
with the understanding that they would be paid a fixed weekly salary and would
work whatever number of hours were required to get the job done: “Each was
aware that the fixed weekly compensation would not fluctuate with the hours
worked.” Id. at 1137. Eventually the managers became dissatisfied with the
irregular but consistently long hours and filed suit seeking overtime
compensation. Id. In the section of the opinion relevant to this case, we
explained the correct method of calculating unpaid overtime was FWW: first, to
compute the regular hourly rate, “divid[e] the actual hours worked each
workweek into the fixed salary.” Id. (emphasis added). Then, “[t]he overtime
payment for that week is [] determined by multiplying all hours over 40 in the
workweek by ½ the regular rate for that workweek.” Id. at 1139 (emphasis
added).
9
See also Wage & Hour Div., U.S. Dep’t of Labor, Retroactive payment of overtime and
the fluctuating workweek method of payment, Opinion Letter FLSA 2009-3 (Jan. 14, 2009),
2009 WL 648995 (approving FWW to calculate the amount of overtime due to employees whose
hours fluctuated above and below a minimum hourly expectation each week).
10
In an earlier case, Warren-Bradshaw Drilling v. Hall, 124 F.2d 42, 44 (5th Cir. 1941),
we held that “if there is no agreement fixing the amount to be paid for regular and overtime
work, the regular rate, as to it, may properly be determined by dividing the total pay each
week by the total hours worked.” (Emphasis added.)
12
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Thus, Blackmon and Missel reflect the same instruction for this panel and,
one would think, for the instant magistrate judge as well: FWW is the proper
method of calculating overtime when an employee like the Party City EMs here
are paid a weekly wage and are expected to work fluctuating hours. But
acknowledging that Blackmon “arguably controlled this case,” the magistrate
judge nevertheless refused to follow it on the ground that it was wrongly
decided. Cf. EZPawn, 633 F. Supp. 2d at 406 (the same magistrate judge calling
Blackmon “fundamentally flawed”). We should say, we find this an uncommon
reason for the magistrate judge not to follow binding precedent.
C.
Finally, Urnikis-Negro, a recent Seventh Circuit decision, further
demonstrates the propriety of applying FWW here. 616 F.3d 665. In that 2010
case, the female plaintiff prevailed in her FLSA misclassification suit and was
awarded overtime but was unhappy with the district court’s calculation of the
amount of pay she was owed, and thus appealed. Id. Although she and her
employer had never “discussed the number of hours she would be expected to
work when [the company] hired her,” the district court “found that she also
understood that her [fixed weekly] salary was to cover whatever time she was
called upon to work in a given week.” Id. at 667. The district court had based
its conclusion on § 778.114(a), see supra n.5. The Seventh Circuit considered §
778.114(a) to be a “dubious source of authority” that most certainly “is not a
remedial measure” and, as an interpretive bulletin, is entitled only to a “measure
of respect,” not full Chevron deference; nevertheless, the Seventh Circuit found
that the district court’s conclusion was independently supported by Missel. Id.
at 676, 678-79, 681. Because Urnikis-Negro’s wage was “intended to compensate
her not for 40 hours per week or some other fixed number of hours, but for any
and all hours that she worked in a given week . . . it is Missel which dictates how
13
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the regular rate of pay must be calculated . . . .” Id. at 681. Missel, as discussed
above, endorses FWW.
In our view, the Seventh Circuit properly affirmed the FWW
determination of the regular rate of pay. The relevant facts of the plaintiffs’
employment in the present case are quite similar to the plaintiff’s in Urnikis-
Negro. There, as here, the testimony showed that the employee expected to work
some general number of roughly fixed hours; yet, after she was hired, the
employee often worked substantially more than that number of hours each week,
and she was always paid only her fixed weekly wage. Id. at 680. The case before
us fits this precedent. As outlined above, the EMs at Party City were told that
the workweek was “around” 55 hours, but they were also told that the number
would fluctuate from time to time. Moreover, the undisputed facts demonstrate
that they often worked more,11 and sometimes significantly fewer hours.12 This
course of conduct, along with the parties’ initial understanding of the
employment arrangement, establishes that the plaintiffs here were to be paid a
fixed salary for the total number of hours they worked in a week. See Singer v.
City of Waco, Tex., 324 F.3d 813, 824-25 (5th Cir. 2003) (stating that “[w]e can
determine how many hours the salary is ‘intended to compensate’ by examining
what happens under the contract.”); see also, Urnikis-Negro, 616 F.3d at 681 n.8
(collecting cases suggesting that, in the absence of an explicit agreement, course
of conduct may be used to infer an agreement regarding the number of hours a
salary was intended to compensate).
11
For example, plaintiff Bonnie Kurz testified at her deposition that “[t]here was a lot
of times we went over 55 hours, yes, sir.” The record is replete with other, similar testimony.
12
The record contains charts of weekly hours worked by each plaintiff during the
relevant period. On Abigail Ransom’s chart, there are certain weeks in which she worked
44.8, 35.48, 34, and 38.97 hours, for example. Other employees’ charts contain similar
numbers.
14
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The magistrate judge, however, dismissed the authority of Urnikis-Negro
because the Seventh Circuit’s holding, in the magistrate judge’s opinion, was
“divorced from the facts” of that case. But as stated above, the relevant facts in
Urnikis-Negro are almost identical to those here, where employees regularly
worked more, and sometimes less, than some rough estimate of a fixed number
of hours. The magistrate judge’s dismissal of Urnikis-Negro is, therefore, error
because, inter alia, it fails to consider employees’ course of conduct.13
In sum, the magistrate judge’s dismissal of Missel, Blackmon, and Urnikis-
Negro is clear error. Because the magistrate judge calculated the plaintiffs’
regular rate of pay by dividing the weekly wage by 55, rather than by all hours
worked, we hold that his decision was based upon a clearly erroneous view of the
facts – that is, his view that the parties had a mutual understanding that the
workweek was for 55 hours. And because this infected the court’s damage
calculation, which did not properly apply the 50% overtime premium established
by FWW to all hours worked over 40 per week,14 we also hold that the court
simultaneously committed an error of law. Consequently, we vacate the court’s
award of actual damages.
VI.
13
At the summary judgment hearing in the present case, the magistrate judge admitted
his own error in failing to consider course of conduct of the parties as affirmation of a
fluctuating workweek, when he said: “So I don’t know of any case . . . where a court has said,
well the fact that [employee-plaintiffs] came to work [for defendant-employer] and understood
that – at least accepted implicit in their actions, that salary for whatever hours they worked
is not enough to show the kind of agreement that they need to have. I’m the only one who’s
done that. Makes me start to think, maybe I’ve got it wrong.”
14
After determining an employee’s “regular rate” of pay, the next step is the calculation
of the overall amount of unpaid overtime due. Under FWW, the employee is then “awarded
a premium of one-half of that rate for the overtime hours he worked that week.” Urnikis-
Negro, 616 F.3d at 678 (emphasis added); see also, Blackmon, 835 F.2d at 1139. The
magistrate judge’s calculation considered hours worked in excess of 55 to be uncompensated,
thus adding a premium of 150%, rather than only the 50% due under FWW, for hours over 55.
This was error. Stated differently, the magistrate judge erred by applying the premium of one-
half the regular rate only to hours 40 through 55, instead of all hours over 40.
15
Case: 12-50534 Document: 00512344480 Page: 16 Date Filed: 08/16/2013
No. 12-50534
In their brief, on cross-appeal, the plaintiffs voiced one concern15 that
warrants further consideration: that Party City’s alleged failure on a number
of occasions to ensure payment of the minimum wage forecloses the use of FWW
in calculating unpaid overtime compensation. See Desmond v. PNGI Charles
Town Gaming, LLC, 630 F.3d 351, 355 (4th Cir. 2001) (relying on and
characterizing Urnikis-Negro as holding “when an employer and employee agree
that a fixed salary will constitute payment at the regular rate for all hours
worked and the rate is not lower than the minimum wage, [FWW applies]”)
(emphasis added); see also 29 C.F.R. § 778.114(c) (stating that “[FWW] may not
be used unless [the employee’s] salary is sufficiently large to assure that no
workweek will be worked in which the employee’s average hourly earnings from
the salary fall below the minimum hourly wage rate applicable under the
[FLSA] . . . .”). Our decision in Blackmon addresses this concern: while agreeing
that § 778.114 “is inapplicable if dividing the number of hours actually worked
into the fixed salary results in an hourly rate below the minimum established
by [the FLSA],” 835 F.2d at 1138 n.1, Blackmon nonetheless also provided the
appropriate solution: “In such instance, the minimum wage must be paid and
that minimum serves as the regular rate of pay for purposes of computing
overtime payments.” Id. (emphasis added). This conclusion rests on the
predicate that the FLSA only requires that the minimum wage be paid for
straight-time hours worked.
When the plaintiffs’ overtime is recalculated on remand, we have no
indication whether this problem will arise. Nevertheless, for any weeks in
which applying FWW results in payment of less than the minimum wage for
straight time pay, the regular hourly rate for unpaid hours of work is the
minimum wage itself.
15
The plaintiffs “cross-appeal,” and yet, they devote only one footnote in their entire
appellate brief to the issue.
16
Case: 12-50534 Document: 00512344480 Page: 17 Date Filed: 08/16/2013
No. 12-50534
VII.
Finally, we address the liquidated damages and attorneys’ fees awarded
by the magistrate judge. The FLSA, 29 U.S.C. § 216(b), allows for liquidated
damages to be awarded for FLSA violations in an amount “equal” to actual
damages.16 Id. Because we have held that the district court erred in calculating
actual damages, see supra Part V, we also vacate the liquidated damage award
and remand for the district court to determine what amount, if any, of liquidated
damages remains appropriate. As for attorneys’ fees,17 we have held that “[t]he
most critical factor in determining an attorneys’ fee award is the ‘degree of
success obtained.” Romaguera v. Gegenheimer, 162 F.3d 893, 896 (5th Cir. 1998)
(quoting Hensley v. Eckerhart, 461 U.S. 424, 436 (1983)). Because the new
damages that will be awarded are relevant to plaintiffs’ overall success in
litigating this suit,18 we vacate the amount of the attorneys’ fee award and
remand for recalculation. See West v. Nabors Drilling USA, Inc., 330 F.3d 379,
395 (vacating attorneys’ fee award for reconsideration in the light of reversal of
16
The general rule is that the court should award the amount found for actual damages
as liquidated damages. Singer, 324 F.3d at 822-23. On remand, the district court may (but
is not required to) decline to award liquidated damages (or reduce the amount) if the court
concludes that the employer acted in good faith or had reasonable grounds to believe that its
actions complied with the FLSA. Id. at 823. It is the employer’s substantial burden to prove
good faith and reasonableness. Id. We leave the good faith determination and Party City’s
potential liability for liquidated damages up to the district court.
17
Under the FLSA, a district court may award reasonable attorney’s fees to the
prevailing party. 29 U.S.C. § 216(b). Multiplying the number of hours reasonably spent on
the case by an appropriate hourly rate in the community for such work, courts use the so-
called “lodestar method.” Heidtman v. County of El Paso, 171 F.3d 1038, 1043 (5th Cir.1999).
There is a strong presumption that the lodestar amount is a reasonable fee, although a court
may decrease or enhance it based on the factors established in Johnson v. Georgia Highway
Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974). See also, Perdue v. Kenny A. ex rel. Winn,
130 S. Ct. 1662, 1673 (2010).
18
See City of Riverside v. Rivera, 477 U.S. 561, 574 (1986) (stating “The amount of
damages a plaintiff recovers is certainly relevant to the amount of attorney’s fees to be
awarded [.]”).
17
Case: 12-50534 Document: 00512344480 Page: 18 Date Filed: 08/16/2013
No. 12-50534
damage calculation); see also, Instone Travel Tech Marine & Offshore v. Int’l
Shipping Partners, Inc., 334 F.3d 423, 433 (5th Cir. 2003) (following reversal of
damage award, court remands for reconsideration of attorneys’ fees incurred on
appeal).
VIII.
In summary, we hold that the record evidence clearly shows that the
plaintiffs in this case were paid a fixed weekly salary and were expected to work
fluctuating weekly hours. Thus, the district court’s 55-hour method of
calculating unpaid overtime damages was error, because it miscomprehended
the employment arrangement and utilized a divisor of 55 in calculating
plaintiffs’ regular rate of pay rather than applying a divisor equal to the number
of all hours actually worked in such workweek. Consequently, the amount of
damages awarded is erroneous. We REVERSE the ruling of the district court,
VACATE the amount of actual damages and REMAND for recalculation as
instructed in this opinion. We further VACATE the award of liquidated
damages and the amount of the attorneys’ fee award, and we REMAND for
reconsideration of those awards.19
REVERSED, VACATED, and
19
Reassignment of a case may be appropriate where "the original judge would
reasonably be expected upon remand to have substantial difficulty in putting out of his or her
mind previously-expressed views or findings determined to be erroneous or based on evidence
that must be rejected." League of United Latin Am. Citizens, Dist. 19 v. City of Boerne, 675
F.3d 433, 440 (5th Cir. 2012) (quoting In re DaimlerChrysler Corp., 294 F.3d 697, 701 (5th Cir.
2002) (citation and inset quotation marks omitted)). Here, there is some indication, from his
express statements and writings, that the magistrate judge is resistant to the law as set out
in this opinion. Because we take note of 28 U.S.C. § 636(c)(4), which states that "[t]he
[district] court may, for good cause shown on its own motion . . ., vacate a reference of a civil
matter to a magistrate judge . . . ," see Sanches v. Carrollton-Farmers Branch Indep. Sch. Dist.,
647 F.3d 156, 171 (5th Cir. 2011), we leave it up to the district judge to whom the case was
originally assigned to determine whether the magistrate judge is the appropriate judge to
handle the case on remand.
18
Case: 12-50534 Document: 00512344480 Page: 19 Date Filed: 08/16/2013
No. 12-50534
REMANDED.
19