When I was a child, I once heard my father tell a client: “If you are looking for loyalty, then you will find it in the dictionary.” Decades later this exchange still sticks with me. No matter how well we treat our employees, it takes very little for one of them to turn on us and find a reason to sue. Classifying managers as exempt from overtime is a fertile area for such lawsuits.
Frequently, employers assume that paying a manager a significant salary and having that person manage two or more employees is enough to meet the executive exemption from the overtime pay requirements of the Fair Labor Standards Act (FLSA). However, to be exempt, management must be a primary duty and the manager must be able to influence or have authority over personnel decisions. Overtime exemption claims are costly to defend since they tend to be fact intensive. Depending upon the state, these claims can go back as far as six years with exposure for back pay, liquidated (multiple) damages, interest and attorneys’ fees. A recent decision from the United States Court of Appeals in Boston highlights the potential for these cases to occur.
An established and successful Dunkin’ franchisee was sued by two store managers in Massachusetts. Each had agreements that stated that they were to work “no less than a six-day, 48-hour work week,” but they worked well in excess of 50 hours per week. Both admitted that while management was a job duty for them, it was not their primary duty (which is the statutory requirement), as a result of limited staffing and the general responsibilities of the stores. They did not have input in regard to hiring, firing, or promotion of staff and claimed that they were, for the most part, just basic employees. Obviously, the owner saw things differently.
Supervising the two managers was a district manager. The district manager was responsible for seven stores in the area, and it was he who coordinated staffing levels, ordered the baked goods and arranged maintenance, among other management duties. He visited the restaurants weekly and was involved in the hiring and firing of staff.
Although both managers were “in charge” of their restaurants, they spent the vast majority of their time engaged in regular staff duties. Converting their salaries to an hourly rate equivalent, they both made close to the same amount of money as the line staff and had little decision-making opportunities at work as well. One manager stated in his complaint that he did not have time to actually be the manager as he was “on the floor 90 percent” of the time, serving customers, cleaning inside and out of the building, landscaping, and covering shifts. He stated that he could not delegate clean-up or shift coverage because of a lack of staff.
The Court of Appeals focused on the primary duty test in reaching its decision that a trial would be necessary to resolve this dispute. The primary duty test looks at several factors. First, what is the “relative importance” of the manager’s exempt and other duties? While the job descriptions and other written policies make clear that managing is the expectation, the managers’ testimony established that their manual work, such as serving customers and cleaning, also was “critical to the success of the restaurant,” and likely created a question as to whether they were actually performing managerial and non-managerial duties simultaneously. Second, the Court analyzed the amount of time spent on managing and found the evidence inconclusive. Third, the Court reviewed the level of direct supervision and management involved in their jobs.
Again, the owner and the two managers had differing views of how independently the stores were actually managed. Finally, the Court looked at the relationship between the managers’ rate of pay and the rate of pay earned by the hourly employees they managed. For the sake of comparison, the Court reviewed relative rates of pay by converting the managers’ salaries to hourly rates based on the hours the managers claimed they worked. They were close enough to trigger at least suspicion on the part of the Court regarding the applicability of the exemption.
In requiring that this matter go to trial, the Court did not set “black letter law” for the percentages of time spent on various duties. Even though one manager testified he spent 90 percent of his time performing the same tasks as hourly employees, the Court said that it did not necessarily mean that the manager was not primarily performing managerial duties, such as coaching and training workers, at the same time. However, the Court found that the percentage could be “significant in evaluating whether a manager is able to perform supervisory and nonexempt tasks concurrently.”
This case likely arose because the relationship between the owner and the managers broke down and the managers sought revenge. Even if the owner wins the trial, he loses. The expense incurred in a case like this can easily top six figures. Getting exemption status correct can be tricky. According to the U.S. Department of Labor (DOL), there were over 4,500 FLSA lawsuits filed last year regarding misclassified employees. With millions of dollars potentially at stake, it is critical that employers be extremely cautious and rely on their experts to guide them through this subject.
As widely reported, the Department of Labor (DOL) is expected to issue significant new regulations later this year regarding eligibility for this exemption. The changes will include a dramatic increase in the minimum salary that an exempt employee must earn, and also may include more stringent requirements as to the job duties requirement, even if the increased minimum salary amount is satisfied. Being advised in advance by a lawyer who specializes in these issues is crucial. •
Peter Bennett is president of the Bennett Law Firm, with offices in Boston and Portland, Maine and represents management in areas including labor law and employment relations.