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Chevalier v. General Nutrition Centers, Inc.

Superior Court of Pennsylvania

December 22, 2017

TAWNY L. CHEVALIER AND ANDREW HILLER, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED Appellees
v.
GENERAL NUTRITION CENTERS, INC. AND GENERAL NUTRITION CORPORATION Appellants TAWNY L. CHEVALIER AND ANDREW HILLER, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED
v.
GENERAL NUTRITION CENTERS, INC. AND GENERAL NUTRITION CORPORATION Appellants

         Appeal from the Judgment Entered September 6, 2016 In the Court of Common Pleas of Allegheny County Civil Division at No(s): G.D. 13-017194

         Appeal from the Order Entered December 29, 2016 In the Court of Common Pleas of Allegheny County Civil Division at No(s): G.D. 13-017194

          BEFORE: MOULTON, J., SOLANO, J., and MUSMANNO, J.

          BEFORE: BOWES, J., SOLANO, J., and PLATT [*] , J.

          OPINION

          MOULTON, J.

         In these consolidated appeals, General Nutrition Centers, Inc. and General Nutrition Corporation (together, "GNC") appeal from: (1) the September 6, 2016 judgment entered in the Allegheny County Court of Common Pleas in favor of Tawny L. Chevalier and Andrew Hiller, on behalf of themselves and all others similarly situated (collectively, "Employees"); and (2) the December 29, 2016 order granting Employees' petition for counsel fees and litigation costs. Employees sued GNC on the ground that GNC's method of calculating their overtime pay violated the Pennsylvania Minimum Wage Act ("PMWA"), 43 P.S. §§ 333.101-333.115. The trial court agreed and granted Employees' motion for summary judgment, entering judgment in Employees' favor in the amount of $1, 378, 494.77 plus interest. The court later granted Employees' petition for counsel fees and costs.

         For the reasons that follow, we hold that: (1) GNC's method of calculating an employee's "regular rate" by dividing the employee's salary in a given week by the number of hours actually worked in that week did not violate the PMWA; and (2) GNC's payment of an overtime premium of only one-half the "regular rate" violated the PMWA and its accompanying regulations. Accordingly, we affirm in part and reverse in part the trial court's judgment, vacate the order concerning fees and costs, and remand for further proceedings.

         I. Factual and Procedural History

         The trial court summarized the background of this case as follows:

[Employees] worked as store managers, assistant managers, or senior store managers for [GNC] during the period between 2009 and April 2011. [Employees] were salaried employees whose weekly pay was the same no matter the number of hours worked. However, when a salaried employee worked more than forty hours in a workweek, GNC was also required to pay overtime for the hours worked over the forty-hour workweek.
Both parties agree that the PMWA requires a payment of at least one and one-half of the employee's "regular rate" for each hour worked in excess of forty hours. However, they disagree over how to calculate the employee's "regular rate."
The following illustration sets forth the method by which GNC calculates overtime: the salaried employee is paid $1, 000 a week regardless of the number of hours worked. In a particular week, the salaried employee worked 50 hours. GNC divides the weekly pay ($1, 000) by the number of hours worked (50). This produces a $20 amount which GNC treats as the employee's "regular rate." GNC divides the $20 amount by two, which produces a $10 amount. This represents 50% of the employee's "regular rate." GNC multiplies the $10 amount by the number of hours of overtime (10).1 This amount ($100) is paid as overtime. Thus, for this workweek, the salaried employee is paid $1, 100.2
1GNC contends that through payment of salary, the salaried employee has already received regular pay for each of the 50 hours or, in other words, the salary covers the first 100% of the overtime. Thus, the employee is owed only an additional 50% of the wage as overtime.
2 GNC's method of calculating overtime pay is called the fluctuating workweek [("FWW")] method of compensating overtime. . . .
[Employees] contend that the "regular rate" should be calculated based on what is earned in a forty-hour workweek. Thus, the "regular rate" should be calculated by dividing the $1, 000 weekly payment by forty hours. This produces a $25 per hour amount which [Employees] treat as their "regular rate."
[Employees] next multiply each hour of overtime by one and one-half of this dollar amount, which, according to [Employees], is consistent with the [Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201 et seq., which uses] a forty-hour workweek. This produces an amount for ten hours of overtime of $375. Thus, for this workweek, the salaried employee is paid $1, 375. This will be referred to as the forty-hour method of compensating salaried employees.
These two methods of calculating overtime produce very different results. . . .[1]
There is a third construction that neither party has proposed. The "regular rate" will be based on a forty-hour week, but for a salaried employee, the salary covers the first 100% of the overtime.[2]

Trial Ct. Op., 10/20/14, at 1-4 (italics in original).

         In 2014, GNC and Employees filed cross-motions for summary judgment, limited to the issue of whether GNC's use of the FWW method to calculate overtime compensation complies with the PMWA. On October 20, 2014, the trial court granted Employees' motion and denied GNC's motion, concluding:

The General Assembly delegated to the [S]ecretary [of the Pennsylvania Department of Labor and Industry ("Secretary")] the responsibility for promulgating regulations interpreting "regular rate." The one sentence of the PMWA mandating overtime pay provides no guidance as to whether an employer is permitted to use the [FWW method] to calculate overtime pay for salaried employees. The regulations also provide no guidance.
When the words of a statute are not clear, the intention of the General Assembly may be ascertained by considering the occasion and necessity for the statute, the mischief to be remedied, and the object to be attained. Habecker v. Nationwide Ins. Co., 445 A.2d 1222, 1224 (Pa. Super. 1982); 1 Pa.C.S.A. § 1921.
The purpose of the portion of the PMWA governing overtime was to alter the behavior of employers. The goal was to cause employers to hire new workers in lieu of paying existing employees to work overtime by making overtime more expensive. A construction of the PMWA that allows the use of the [FWW] encourages the use of overtime. A method for calculating overtime that defines "regular rate" as the rate based on a forty-hour workweek creates a substantial financial incentive to hire new employees instead of paying for overtime. Consequently, GNC's use of the [FWW method] to calculate [Employees'] overtime pay violates the PMWA.

Id. at 21-22.

         On December 16, 2014, Employees filed a motion for class certification, which GNC opposed. On July 15, 2015, the trial court granted Employees' motion, certifying a class of current and former GNC employees in Pennsylvania who were paid overtime compensation using the FWW method.

         Thereafter, GNC requested additional discovery. On March 15, 2016, Employees filed a motion for a protective order objecting to the requested discovery, which the trial court granted. Also on March 15, 2016, Employees filed a motion to include commissions in the calculation of Employees' damages for unpaid overtime. The trial court granted the motion, concluding that GNC may not use the FWW method of calculating overtime as to Employees' commissions. See Trial Ct. Op., 5/11/16, at 3-5.

         On September 6, 2016, the trial court entered final judgment as follows:

[T]his Court having previously determined that [GNC's] methodology of calculation of overtime was contrary to Pennsylvania law, and that a 1.5 multiplier was required to be applied to a "regular rate" based upon a 40-hour workweek in the calculation of overtime due the Class, and furthermore, having certified this matter as a Class Action on July 15, 2015, and upon being advised that the parties agree that the sum of $1, 378, 494.77 represents the correct calculation of the amount of overtime at issue in this case and that $362, 286.08 represents the correct calculation of interest as of this date, and that [Employees'] claim for liquidated damages under the Wage Payment and Collection Law[, 43 P.S. §§ 260.1-260.12, ] is hereby dismissed with prejudice, this Court hereby finds and concludes that this matter is ripe for the entry of judgment.
Thus, the Court hereby enters judgment in favor of [Employees] in the amount of $1, 378, 494.77 plus interest calculated at six percent (6%) per annum from the date of the non-payment of any overtime earned, or $362, 286.08 for a total sum of $1, 740, 780.85 for interest accruing after the date of judgment at the statutory rate, plus costs and attorney's fees and incentive payments in amounts to be determined through further proceedings.

Trial Ct. Judgment, 9/6/16, at 1-2.[3] On September 29, 2016, GNC timely appealed from the judgment.

         On September 15, 2016, Employees filed a petition for counsel fees, litigation costs, and incentive payments, to which GNC filed a response. On December 30, 2016, the trial court awarded counsel fees in the amount of $360, 000 and litigation costs in the amount of $8, 000 but denied Employees' request for incentive payments. On January 17, 2017, GNC timely appealed from that order.

         GNC raises the following issues on appeal:

A. Whether the [FWW] method of computing overtime compensation violates the [PMWA]; that is, whether under the PMWA: (i) the "regular rate" associated with a non-exempt employee's salary must be determined by dividing the employee's weekly salary by 40 (rather than by all hours worked); and (ii) the additional overtime compensation premium owed on that salary must be calculated at 1.5 times that "regular rate" for all hours worked over 40 (rather than 0.5 times the "regular rate").
B. Whether [Employees'] motion for class certification should have been granted, despite the fact that GNC presented evidence that putative class members had an agreement or understanding with GNC that their overtime would be calculated pursuant to 34 Pa. Code § 231.43(d)(3).
C. Whether 34 Pa. Code § 231.43(d)(3) permits GNC to calculate overtime compensation pursuant to an agreement or understanding with class members.
D. Whether under the PMWA: (i) the "regular rate" associated with a non-exempt employee's commission earnings must be determined by dividing the employee's weekly commissions by 40 (rather than by all hours worked); and (ii) the additional overtime compensation premium owed on those commissions must be calculated at 1.5 times that "regular rate" for all hours worked over 40 (rather than 0.5 times the "regular rate").
E. Whether the trial court was authorized to apply a 1.5 contingency "multiplier" enhancement to the lodestar when calculating the award of attorney's fees, where the lodestar already reflected counsel's contingent risk.

GNC's Br. at 4-6 (trial court answers omitted).

         GNC's "issues present pure questions of law, over which our standard of review is de novo and our scope of review is plenary." In re Vencil, 152 A.3d 235, 241 (Pa. 2017); see In re Concord Twp. Voters, 119 A.3d 335, 341 (Pa. 2015) ("Issues of statutory interpretation are pure questions of law."). Our review of a trial court's order awarding counsel fees is limited "to determining whether the trial court palpably abused its discretion." Thunberg v. Strause, 682 A.2d 295, 299 (Pa. 1996).

         II. The FWW Method and the PMWA

         The central issue in this case is whether GNC's use of the FWW method to calculate overtime compensation for salaried employees is consistent with section 4(c) of the PMWA, which provides in relevant part: "Employe[e]s shall be paid for overtime not less than one and one-half times the employe[e]'s regular rate as prescribed in regulations promulgated by the [S]ecretary." 43 P.S. § 333.104(c).

         There are two components of the FWW method at issue. First, the FWW method determines the "regular rate" by dividing the employee's weekly salary by the total number of hours worked in that week. In other words, the "regular rate" for a given employee will fluctuate from week to week as the employee's hours fluctuate. This stands in contrast to the 40-hour method, advocated by Employees and adopted by the trial court, under which the "regular rate" remains constant from week to week. Second, the FWW method, as employed by GNC, pays the employee in question an additional overtime premium of one-half of the "regular rate" for a given week for each hour over 40 worked by the employee in that week, as opposed to one and one-half times the "regular rate."

         A. The Positions of the Parties

         GNC's argument proceeds as follows: (1) In 1942, the United States Supreme Court held in Overnight Motor Transportation Co. v. Missel, 316 U.S. 572 (1942), that the FWW method of calculating a salaried employee's "regular rate, " and the resulting overtime payments, was lawful under the FLSA. (2) In 1968, the Pennsylvania General Assembly adopted the "regular rate" terminology in the PMWA's overtime provision. (3) Pennsylvania case law instructs that, unless a contrary intent appears, when a Pennsylvania statute tracks the language of a federal statute, Pennsylvania courts should consult federal authority for guidance in ascertaining the meaning of the term in question. (4) Nothing in the text of the PMWA suggests that the General Assembly intended to give a meaning to "regular rate" different from that established under the FLSA. (5) While the PMWA does authorize the Pennsylvania Department of Labor and Industry ("Department") to promulgate regulations defining "regular rate, " and the Department could have promulgated a regulation defining "regular rate" to prohibit the FWW method, it has not done so, and nothing in the PMWA regulations that the Department has adopted evinces an intent to bar the FWW method.

         Employees counter that important differences between the PMWA and the FLSA belie GNC's wholesale-FLSA-incorporation argument. According to Employees, those differences, along with policy statements contained in the preamble to the PMWA, demonstrate that the PMWA was intended to provide greater protection to employees in Pennsylvania than that afforded by the FLSA. In particular, Employees point to the language in the PMWA that, as both parties concede, authorizes the Department to define "regular rate" differently (and more favorably to employees) than does federal law. And while Employees admit that no Pennsylvania regulation expressly prohibits the FWW method for salaried employees, they emphasize that Pennsylvania has not promulgated a regulation authorizing the FWW method. To support the significance of that omission, Employees point out that the Department has promulgated a regulation that expressly permits a version of the FWW method, but only for employees paid at a flat rate per day or per job. See 34 Pa. Code § 231.43(b). They contend that the Department's failure to adopt a similar regulation for salaried employees, as exists in the FLSA regulations, is telling. Finally, Employees argue that the FWW method runs directly counter to what they contend is a fundamental purpose of the PMWA - promoting greater employment by incentivizing employers to hire more workers rather than incurring substantial costs in paying overtime to existing workers.

         As noted above, both parties agree that: the PMWA authorizes the Secretary of the Department to promulgate regulations defining the term "regular rate" as it applies to salaried employees; the Secretary's authority would support a regulation either permitting or prohibiting the FWW method for calculating overtime pay for such employees; and the Secretary has not exercised that authority in either direction. In essence, the difference between the parties' positions is that GNC argues that absent an express prohibition, the FWW method is permissible, while Employees argue that absent an express authorization, the FWW method is impermissible.

         B. The Pennsylvania Department of Labor and Industry

         On September 22, 2017, shortly after oral argument, this Court issued an order requesting (but not requiring) the views of the Department concerning "whether the PMWA authorizes an employer to use the [FWW] method to calculate overtime compensation for salaried employees." Super. Ct. Order, 9/22/17, at 2. The order further provided:

In particular: (1) is the "regular rate" referenced in Section 333.104(c) of the PMWA properly determined by dividing the employee's weekly salary by all hours worked or by 40; and (2) for hours worked over 40, is the overtime to be paid to salaried employees an additional one and one-half times the regular rate, or an additional one-half times the regular rate.

Id.

         The request was based on several factors, including the Department's general responsibility for administering and enforcing the PMWA. Indeed, had Employees in this case so chosen, they could have filed a complaint with the Department's Bureau of Labor Law Compliance challenging the legality of GNC's use of the FWW method for calculating overtime.[4] Had Employees done so, the Department would have been authorized to "take an assignment of such wage claim, in trust for the assigning worker and . . . bring any legal action necessary to collect such claim." 43 P.S. § 333.113.

         In addition, GNC supports its interpretation of the PMWA by reference to a letter issued in 1998 by a deputy chief counsel in the Department. GNC's Br. at 36, 40-41; see Ltr. from R. Lengler to J. Harris, 11/12/98 ("1998 Letter"). The 1998 Letter appears to be a response to an inquiry from an attorney for an employer; the inquiry itself is not in the record.[5] While the letter suggests that the inquiry did not raise the FWW issue, the letter did offer some general observations about that method of calculating overtime.[6]

         On October 11, 2017, the Department responded to this Court's order as follows:

The [Department] respectfully responds to the Superior Court's September 22, 2017 Order requesting that the Department provide its views regarding whether the [PMWA] authorizes an employer to use the [FWW] method to calculate overtime compensation for salaried employees. While the Department appreciates the opportunity to comment on the important issue under consideration by the Court, the Department must respectfully decline the Court's invitation.
The subject matter of the Court's request implicates not merely an interpretation of law but policy choices among competing positions as to how best to effectuate the intent of the legislature. The development of guidance to implement statutory law generally involves public notice and comment, stakeholder outreach, and coordination within key Commonwealth agencies. Accordingly, there is a significant concern that articulation of a formal position on this issue may be construed as agency rule-making in a manner inconsistent with the Commonwealth's regulatory review process.
While the Department is unable to offer its views, the Department nonetheless looks forward to the Court's guidance on the contours of the law on this significant issue of employment law.

Ltr. from M. Sajer to N. Corsetti, 10/11/17, at 1-2.

         Both GNC and Employees submitted briefs in response to the Department's October 11, 2017 letter. Not surprisingly, each party argues that the Department's response supports its respective position. GNC contends that the Department's letter: (1) confirms that existing regulations do not address, one way or the other, the validity of the FWW method under the PMWA; (2) confirms that the FWW method implicates competing policy considerations best addressed by either the General Assembly or the Department through the formal rulemaking process; and (3) did not repudiate the Department's earlier statement (in the 1998 Letter) affirming the validity of the FWW method. GNC's Br. in Resp. to Dep't Ltr. at 2-16. Employees, in contrast, argue that the Department's letter: (1) effectively rejects the "unofficial observations" in the 1998 Letter; and (2) supports Employees' view that absent express authorization for the FWW method in either the PMWA itself or in duly enacted regulations, use of that method is prohibited. Employees' Resp. to Dep't Ltr. at 1-4.

         C. Analysis

         We must measure both aspects of GNC's FWW method of calculating overtime against the PMWA: (1) calculation of the "regular rate" by considering all hours worked in a week (as opposed to 40 hours); and (2) paying overtime beyond salary at one-half the regular rate (as opposed to one and one-half times that rate). To assess the parties' arguments, and to determine the meaning of the relevant provisions of the PMWA and its ...


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