Is applying federal overtime regulations to Pennsylvania state law akin to comparing apples to oranges? In the Pennsylvania Supreme Court’s recent decision in Chevalier vs. GNC, turns out the answer is “yes.” And not just “yes,” but yes to the tune of $1.7 million in back wages that GNC now owes to a class of employees.
How did this happen?
Under both federal and state law, it is easy to calculate the overtime rate for hourly workers. Generally, you take an employee’s hourly rate and multiply that number by 1.5. Some might say it’s as easy as apple pie.
The employees in Chevalier vs. GNC, however, were salaried as opposed to hourly employees. In certain circumstances, the federal Fair Labor Standard Act (“FLSA”) allows employers to calculate an employee’s overtime rate at .5 times the employee’s regular rate, as opposed to 1.5 times. The Supreme Court upheld this practice way back in 1942.
However, Pennsylvania law was unclear as to whether this practice was allowed under the state Pennsylvania Minimum Wage Act (PMWA). So, in the absence of any clear ruling in Pennsylvania disallowing this practice, GNC followed the FLSA and paid many of its employees .5 times the regular rate for overtime. In a landmark decision of first impression, the Pennsylvania Supreme Court held in Chevalier vs. GNC that GNC violated the PMWA by doing this.
What’s the difference between the FLSA and PMWA? Allow me to illustrate.
Suppose Karen pays Jim a weekly salary of 200 apples per week. Both the FLSA and PMWA require that Jim (a “non-exempt” employee in our hypothetical) be paid overtime for all hours worked over 40 in any given week. The question is exactly how many apples does Jim get for working overtime? Per the FLSA, Karen would be permitted to pay Jim 0.5 times his regular rate. So, if Jim worked 50 hours in one week, his regular rate would be 4 apples/hour (200 apples/50 hours). Karen would then owe Jim 2 apples for each hour of overtime.
However, per the Pennsylvania Supreme Court’s holding in GNC, Karen must pay Jim 1.5 times his regular rate. Jim’s regular rate equates to 5 apples/hour (200 apples/40 hours). So, Karen owes Jim 6.5 apples for each hour of overtime. Compared to the FLSA, that’s an additional 4.5 apples per hour.
Now, suppose Karen has 1,000 employees like Jim to whom she owes an additional 4.5 apples per hour of overtime going back two or three years. That’s a lot of apples. In the case of Chevalier vs. GNC, that totaled 1.7 million to be exact. In the words of Good Will Hunting, “How do you like them apples!?”
StraightforWARD Legal Advice:
Employers need to be aware of state wage and hour laws that apply to their employees, as they often differ from their similar federal counterparts. In GNC’s defense, the law in Pennsylvania was unclear on this issue. Yet, as is almost always the case with wage and hour violations, GNC’s good faith interpretation of the law did not amount to a hill of… beans – just a whole lot of apples.