Chevalier v. Gen. Nutrition Ctrs., Inc.

177 A.3d 280

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

No. 1437 WDA 2016

No. 92 WDA 2017

Superior Court of Pennsylvania.

Argued September 19, 2017

Filed December 22, 2017

Allison R. Brown, Pittsburgh, and Robert W. Pritchard, Pittsburgh, for appellant.

Adrian N. Roe, Pittsburgh, and Michael D. Simon, Monroeville, for appellee.

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

OPINION BY 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

¹ GNC 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

...