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Lalli v. General Nutrition Ctrs., Inc.

United States Court of Appeals, First Circuit

February 12, 2016

JOSEPH LALLI, Plaintiff, Appellant,
v.
GENERAL NUTRITION CENTERS, INC. and GENERAL NUTRITION CORP., Defendants, Appellees

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Michael A. Ponsor, U.S. District Judge.

Mathew P. Jasinski, with whom William Narwold and Motley Rice LLC were on brief, for appellant.

Robert W. Pritchard, with whom Allison R. Brown and Littler Mendelson, P.C. were on brief, for appellee.

Before Kayatta, Stahl, and Barron, Circuit Judges.

OPINION

Page 2

STAHL, Circuit Judge.

From August 2009 through January 2013, Plaintiff-Appellant Joseph Lalli (" Plaintiff" or " Lalli" ) was employed by General Nutrition Centers, Inc. and General Nutrition Corp. (collectively, " Defendants" or " GNC" ) as a store manager. Lalli challenged his compensation arrangement under the Fair Labor Standards Act (" FLSA" ), 29 U.S.C. § § 201-219, and the Massachusetts Minimum Fair Wage Law (" State Wage Law" ), Mass. Gen. Laws ch. 151, § § 1-22. Upon GNC's motion, the district court dismissed the complaint. Lalli now appeals that decision. For the reasons set forth below, we affirm.

I. Facts & Background

The facts of the case are quite straightforward. GNC sells health and wellness products through company-owned stores throughout the United States. Lalli was a store manager at a GNC store in Massachusetts. As a store manager, Lalli earned a guaranteed weekly salary regardless of the hours worked that week and a non-discretionary sales commission that varied based upon the amount of eligible sales attributed to him for that week. Whenever Lalli worked over forty hours in a given week, he was also paid an overtime premium for each hour worked in excess of the forty hours. In calculating Lalli's overtime, GNC used a " fluctuating workweek" (" FWW" ) method to calculate his overtime pay rate. Under this method, GNC would (1) add together both (a) the guaranteed salary for the week and (b) the commissions earned that week; (2) divide the total wages by the number of hours the employee logged for that week; and (3) pay an additional 50% of the resulting per hour rate for any hour worked in excess of forty hours that week.

On December 31, 2013, Lalli filed a two-count complaint alleging violations of the FLSA and the State Wage Law. Lalli alleged that GNC's method of calculating overtime violated the statutes, arguing that the FWW calculation method lawfully applies only when a business pays a fixed amount for the week. Because the commission earnings varied from week to week, Lalli alleged that GNC did not pay him a " fixed" amount. One month later, GNC moved to dismiss the complaint for failure to state a claim. The district court allowed the motion, concluding that an employer may use the FWW method to assess overtime pay rates even when an employee's weekly pay varies as a result of performance-based commissions. Lalli then filed the instant appeal.

II. Analysis

The FLSA[1] requires employers to compensate employees for each hour worked in excess of forty hours during a workweek " at a rate not less than one and one-half times the regular rate at which [they are] employed." 29 U.S.C. § 207(a)(1). " [T]he regular rate refers to the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed." Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424, 65 S.Ct. 1242, 89 L.Ed. 1705 (1945).

If an employee is paid a fixed salary each week regardless of the hours worked, the employer calculates the " regular rate" each week by dividing the weekly wages by the hours worked that particular week. Overnight Motor Transp. Co. v. Missel,

Page 3

316 U.S. 572, 580 n.16, 62 S.Ct. 1216, 86 L.Ed. 1682 (1942). " [T]hough week by week the regular rate varies with the number of hours worked," it is " regular in the statutory sense inasmuch as the rate per hour does not vary for the entire week." Id. at 580. The employer then multiplies the regular rate by 50% to produce the additional overtime compensation that must be paid for every hour worked beyond forty that week. O'Brien v. Town of Agawam, 350 F.3d 279, 287 (1st Cir. 2003). Only an additional " half" is required to satisfy the statute because the " time" in " time-and-a-half" has already been compensated under the salary arrangement.[2] Id. at 288.

All of these principles are echoed and illustrated in the interpretive bulletins issued by the Department of Labor (" DOL" ). In 29 C.F.R. § 778.109, the DOL lays out the general rule for calculating overtime pay:

The " regular rate" under the Act is a rate per hour. The Act does not require employers to compensate employees on an hourly rate basis; their earnings may be determined on a piece-rate, salary, commission, or other basis, but in such case the overtime compensation due to employees must be computed on the basis of the hourly rate derived therefrom . . . . 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.

Section 778.109 then states that " [t]he following sections give some examples of the proper method of determining the regular rate of pay in particular instances."

Two " examples" of compliant pay structures warrant particularly close attention here. Section 778.114 describes what to do when an employee receives a " [f]ixed salary for fluctuating hours." According to the DOL, an employee may be employed on a salary basis and have hours " which fluctuate from week to week" if the salary is paid " 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 fewore many." 29 C.F.R. § 778.114(a). " Where there is a clear mutual understanding . . . that the fixed salary is compensation . . . for the hours worked each workweek, whatever their number, . . . such a salary arrangement is permitted by the Act" if the resulting regular rate is sufficient to provide compensation above the minimum wage rate. Id. As in Missel, the regular rate " is determined by dividing the number of hours worked in the workweek into the amount of the salary." Id. " Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime

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pay requirement because such hours have already been compensated at the straight time regular rate." ...


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