Federal Court in Massachusetts Dismisses Challenge to GNC’s “Chinese Overtime” Policy – Plaintiffs likely to appeal!

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On January 13, 2015 a federal judge in Springfield Massachusetts dismissed the case challenging GNC’s halftime overtime policy sometimes referred to as “Chinese overtime.” This case presents many interesting issues including presidential politics.

Plaintiff Joseph Lalli was a store manager of the GNC retail store in Massachusetts. For his work each week he was paid a base salary and then commissions based on sales. GNC acknowledged that Mr. Lalli and other managers were entitled to overtime pay but instead of paying time and a half GNC paid halftime under federal regulation called the fluctuating workweek method of overtime pay. This method of pay is sometimes referred to as “Chinese overtime.” It pays the employees one half of their regular hourly rate rather than 1 ½ times their regular hourly rate and it computes this halftime rate each week depending on how many hours are worked. Under this formula as the employee works more hours their halftime rate become smaller.

During Pres. George W. Bush’s administration his secretary of labor proposed that this method of pay, which by rule is only allowed when the employee receives a fixed weekly salary, be allowed even though they sometimes receive bonuses. Many courts have recently ruled that the payment of bonuses rendered the employees pay varied, rather than fixed, and therefore in violation of the rule. For example the First Circuit Court of Appeals in the case called O’Brien v. Town of Agawam had ruled that police officers who received extra pay for night shifts weekend shifts or when they work more than eight hours in a day could not be paid halftime overtime because their pay each week was not fixed. When Pres. Obama took office his administration investigated the proposed rule change and 2011 rejected. His Final Rule which was published in April 2011 indicated that the payment of bonuses was incompatible with the fluctuating workweek method of paying overtime. Subsequent to that final rule numerous court challenges to employer use of Chinese overtime have been made. Some courts have held that there’s a difference between bonuses based on performance and bonuses tied to hours worked. Other courts have followed the Obama rule and held that all bonuses are incompatible with the fluctuating workweek.

In Lalli the District of Massachusetts held that GNC’s commissions were performance-based bonuses and were not tied to hours. Accordingly Mr. Lalli’s challenge to GNC’s policy was dismissed. Ruling Granting Motion to Dismiss. Lawyers for the plaintiffs have indicated that they intend to appeal this ruling to the First Circuit Court of Appeals. This issue is also pending in other courts of appeals including the Sixth Circuit and the Second Circuit.  Mr. Lalli is represented by Matthew Jasinski of the Hartford firm of Motley Rice.

These cases reveal an intense desire by corporations to save every nickel they can by paying as few wages as permissible under the law. Most people understand that employees who are entitled to overtime should be paid an hourly wage and one half times that rate when they work overtime. Over the years legal challenges to employer’s classifications of employees as exempt from overtime have forced many employers to rethink their classification decisions. Classes of employees who had previously been denied overtime are now being paid overtime because of this litigation. Unfortunately, employers are now paying those previously exempt employees halftime overtime rather than time and a half. This is likely to be the new battlefield for litigation between workers and employees. This year should result in rulings from several circuit courts on these issues. It could be that one or more of these cases find their way to the US Supreme Court.

 

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