In an appeal concerning the correct calculation of overtime damages due to employees misclassified as exempt, the Fifth Circuit Court of Appeals emphatically slammed the door on a trial court’s attempt to require an employer to pay time-and-one-half for all overtime hours worked. Instead, the Fifth Circuit held that the correct measure of damages is based on the same calculation used for a fluctuating work week.

In Ransom v. M. Patel Enterprises Incorporated, which the Fifth Circuit decided on August 16, the employer appealed a lower court’s ruling applying what the court termed the “magistrate judge’s unorthodox preferred methodology.” The methodology was first used in In re EZPawn LP Fair Labor Standards Act Litig., a 2008 case out of the U.S. District Court for the Western District of Texas, handled by the same magistrate judge whose methodology was appealed in this case. The Fifth Circuit explained the formula as dividing the salary paid by 40 hours—which is the standard work week to determine the regular rate of pay—and then requiring an overtime rate of 150% of that regular rate of pay for each hour worked over 40.

In Ransom, the magistrate judge varied the calculation by dividing the salary of the improperly classified employees by 55 hours—the figure he determined that the weekly salary was “intended to compensate”—to get the regular rate of pay. He then found that for all hours worked under 40, the employees had been paid all they were owed, for hours between 40 to 55 each week, they were owed one-half the regular rate of pay, and for all hours worked over 55, they were owed one-and-one-half the regular rate of pay.

In going through the factual record in great detail, the court found that it was clear that the salary paid was intended to cover all hours worked. And reaffirming what it thought was settled law by citing the Supreme Court’s 1942 decision in Overnight Motor Transportation Company vs. Missel, as well as its own Blackmon v. Brookshire Grocery Company holding from 1988, the court (once again) held that in cases where the employer paid a salary to cover all hours worked, the proper calculation was the same as that used for a fluctuating work week. The salary is to be divided by the total number of hours worked in a week to obtain the regular rate of pay and one-half of that amount is to be paid for each overtime hour worked in the week.

Given the disapproving tone of the opinion, it is unlikely that a trial court in the Fifth Circuit is likely to commit this error in the near future. From Ransom, employers wanting to ensure that the more favorable damage treatment is obtained, have a clear road map to follow.