Wal-Mart Avoids Paying Overtime For Now

The Associated Press reported that Wal-Mart Stores Inc. has not seen its final day in court.  Yesterday, the 10th U.S. Circuit Court of Appeals overruled the U.S. District Court for Colorado’s summary judgment ruling that the company owes an estimated $140 million to pharmacists for unpaid overtime.  However, Wal-Mart is not off the hook quite yet.  The reversal of the lower court’s decision is not based on the merits of either parties claim.  Instead, it was the need for more evidence and determination of material questions of fact that made summary judgment by the lower court inappropriate.  As an appellate court, the 10th Circuit does not have the opportunity to hear any of the new evidence or make a decision on the merits of the case itself; the District Court will hear the case and make factual determinations regarding if Wal-Mart owes additional compensation to its pharmacists.

When this class action litigation began in 1995 Wal-Mart employed over 6,000 pharmacists with almost 4,000 being full-time employees.  The crux of the matter centers on whether the full-time pharmacists are salaried employees under the definition of the Department of Labor (DOL).   The Fair Labor Standards Act of 1938 (FLSA) § 29 U.S.C. §201 governs this action and states that employees who work more than a 40 hour work week must be paid time and a half for overtime.  The exception to this rule is when a “professional” employee is paid on a salaried basis.  Wal-Mart contends that pharmacists were paid based on a salary and consequently meet the professional exemption. However, plaintiffs argue that Wal-Mart changed the pharmacists salaries so often, based on workload fluctuations, that in reality, they were paid an hourly wage.

The key to determining who will win in this situation will largely be based on how the court determines the statutes in the FLSA.  Wal-Mart’s contract with the pharmacists provided for a minimum guarantee of hours compensated by a set payment plus compensation of additional hours worked.  Wages for any hours above the minimum were determined by dividing the “salary” by the minimum hours.  In the past courts have rules that compensation for overtime hours is not inconsistent with paying a salary.  However, it is not clear that Wal-Mart stayed within the definition of paying “salaries.”  Seasonally or when business volume decreased pharmacists’ base hours and pay were decreased.  Consequently, per the salary-basis test (outlined by §541.118 (a)) Wal-Mart’s practices may have violated the meaning of the term “predetermined amount” by making payment subject to reduction based on variations in workloads. The court is likely to rely heavily on the opinion letters issued by the DOL.  When a statue is largely related to a government agency, such as wages and the DOL, the court will often show deference to the interpretation of the agency unless it is clearly erroneous or inconsistent with the regulation.  Three such letters have been issued by the DOL concerning matters of changing salaries during times of economic slowdowns and are likely to help Wal-Mart build their case that the pharmacists were appropriately classified as salaried employees.  However, the letters are not conclusive.    

The implications of this case’s outcome is of importance to employees and employers alike.  If the pharmacists are successful against Wal-Mart other similar actions may arise.  Further, there are policy implications of the court’s final decision in this matter.  Based on the ruling, companies may need to use extra caution in determining if they are truly paying salary to their employees or if they too might be responsible for paying overtime.  Some companies who manage contracts similarly to Wal-Mart might be taking second looks at what before seemed an economic way to manage employee compensation.  The difference between time versus time and a half may not seem huge on a small scale, but when multiple employees and prolonged periods of time are involved, it can cost millions as Wal-Mart’s predicament shows.

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