REQUIRMENTS FOR A VALID "BELO CONTRACT" UNDER THE FEDERAL FAIR LABOR STANDARDS ACT

Linda K. Williams

Does a payment plan comply with the Fair Labor Standards Act (FLSA) requirement that overtime be computed on the basis of every workweek, if it is computed by paying a constant weekly wage, based upon a regular 40 hour workweek plus 10 hours of weekly overtime, regardless of the time actually worked up to the 50 hour guarantee. A constant weekly wage based upon a set amount of overtime, even when irregular hours are worked, can be paid under some conditions under § 7(f) of the FLSA and the accompanying regulations. 29 CFR § 778.404. The permitted exception is known as a "Belo contract," named after the US Supreme Court case approving its use. Walling v. A.H. Belo Co., 316 US 624 (1942).

REQUIREMENTS FOR CONSTANT WAGE BELO CONTRACTS.

For employees who work irregular hours, the use of a Belo contract will permit the employer to pay a fixed salary in all weeks except those in which an exceptionally high number of hours are worked. 29 CFR § 778.404. Using a Belo plan, the employer and the employee agree upon an hourly rate of pay which is substantially less than the employee's average hourly earnings in an ordinary week. The employee is promised this hourly rate for the first 40 hours each week and at least time and one half the regular rate for a specified number of overtime hours. Employees are paid the guaranteed weekly wage regardless of the number of hours they actually work. The weekly guarantee must be based upon a specified rate for a definite number of hours.

The Act specifies the following restrictions:

1. The regular rate of pay must not be less that statutory minimum wage.
2. The guaranteed wage must be set pursuant to an employment contract.
3. The guaranteed wage must be weekly, not semi-monthly or monthly.
4. Employees must work fluctuating hours which are not controllable by either the employee or the employer.
5. The guarantee must not cover more that 60 hours per week.
6. The plan must specify a regular rate of pay and provide compensation of at least one and one-half times the regular rate for all hours worked in excess of the statutory minimum (the over-time rate can be greater than one and one-half times regular wage. Wage and Hour Administrator Opinion, September 20, 1957).

        A.     RECORDKEEPING.

Given the strict application of the requirements to qualify for the exception, it is the best practice to make the Belo contract terms express and written for each employee.
Courts will hold an employer to strict observance of the record-keeping requirements in order to uphold a Belo plan. For example, the hourly wage must bear some "reasonable" reaction to the weekly guarantee, so that the stated hourly wage bears a relationship to what employees actually receive and is not "fictitious." In order to meet the relationship test, and employer must keep accurate records of time worked, and pay overtime when an employee exceeds the number of hours covered by the contract. McComb v. Sterling Ice Co., 165 F2d 265 (10th Cir 1947); Tobin v. Morristown Poultry Co., 10 Wage and Hour Cases (ED Tenn 1952).

        B.     IRREGULAR HOURS.

The duties of the employee must normally or usually require irregular hours. If a court finds that the employees base expectations upon the weekly guarantee and not the written arrangement for an hourly wage, the contract will be defective. The fluctuation in hours worked must be caused by the particular duties of the individual employee and must be the direct and unavoidable result of the employee's duties. The general requirements of the employer's business may not be the cause of the fluctuation. Foremost Dairies Inc. v. Wirtz, 381 F2d 653, (5th Cir 1967). The regulations use insurance adjusters, news photographers, firefighters and on-call repair crews as examples of jobs where hours are truly irregular. In the SESCO situation, the contract or explanatory materials could recite that the hours are the direct result of performing the required work in a manner most efficient and useful for the building resident.

The record-keeping requirements are important to show that the fluctuations include weeks both above and below 40 hours. Where the fluctuation is only in overtime hours, the plan will be invalid. Donovan v. Tierra Vista, Inc., 796 F2d 1259 (10th Cir 1986); Trager v. Plastics Mfg. Corp., 13 Wage and Hour Cases 621 (SD NY 1958). An employee who, on only 7 occasion within 30 months, worked less that 40 hours per week, did not work "irregular" hours with the meaning of the Belo exception. Dunlop v. Marvin A. Smith Co., 23 Wage and Hour Cases 794 (D E Tex 1976). An employee who worked less that 40 hours a week in only 8 out of 119 weeks did not satisfy the irregular hour requirement. Crenshaw v. Qualres Drilling Corp., 798 F2d 1345 (10th Cir. 1986).

        C.     INCENTIVE PLANS MUST BE DISCRETIONARY BONUSES UNDER 29 CFR § 778.211.

Using certain kinds of incentive pay plans in conjunction with a guaranteed wage may invalidate the Belo plan. For example, a company which employed field technical service representatives wanted to increase the number of customers these employees visited each week. The Company wrote a letter of inquiry to the Administrator on whether any of the following incentives would destroy the validity of the Belo exemption contract:

1. Offers of "prize points" to employes based on number of customer visits per week. The accumulated points could be converted to merchandise.
   
   
2. Annual or semi-annual payment of bonuses to each employee based on overall performance, including appearance, attitude, general achievement, and number of visits to customers in the 6-month or year period.
   
   
3. Monthly $50.00 bonus to each employee who makes X number of calls each week of the month.

The Administrator indicated that incentive plans 1 and 3 would invalidate the Belo contract since the employee's total compensation would always be controlled by the incentive bonus and/or the prize points earned in addition to the hourly wage set in the Belo plan. Plan 2 might be allowed under the provision that a year-end bonus or similar payment not regularly paid as part of usual wages will not invalidate a Belo plan. Wage and Hour Administrator Opinion, April 8, 1965. The yearly bonus would have to be truly discretionary. Gifts, Christmas presents, certain profit-sharing or qualified savings plans are also excluded from calculation of regular rate of pay. 29 USC 778.212-.213. If an employee has an expectancy or implied right to a bonus, it is not discretionary. A promise to pay a bonus upon fulfillment of objective criteria is not a discretionary bonus. 29 CFR § 778.211(b). Thus a valid bonus which can be paid in addition to Belo constant wages would have to be annual, and include subjective criteria such as attitude and general achievement.