Massachusetts Employment Law Letter

(Over)time to make the donuts?

With new Fair Labor Standards Act (FLSA) regulations on the horizon, a recent case from Massachusetts  may be the last of its kind.  In March, President Barack Obama directed Secretary of Labor Thomas E. Perez to update the U.S. Department of Labor’s regulations governing an employee’s exempt status.  Those regulations outline, amongst other things, the standards under which courts determine whether an employee is exempt from the FLSA provisions that require overtime pay for all hours worked in excess of 40 per week.  A recent case from the Massachusetts federal district court shows how part of the current regulations work, but is a new analytical regime on the horizon?  Only time will tell…

Claims for overtime pay

Cadete Enterprises, Inc., operates several Dunkin Donuts franchises in Massachusetts.  Cadete’s stores are run by store managers.  Gassan Marzuq started working as a store manager for the company in 2007, and Lisa Chantre started working as a store manager in 2009.  In February 2011, Marzuq and Chantre filed a lawsuit claiming, among other things, that Cadete was violating the FLSA by not paying them overtime for hours worked in excess of 40 each week and that they were owed overtime under the FLSA and the parallel Massachusetts wage and hour statute.

Cadete deemed store managers exempt from overtime because of their managerial responsibilities, and it paid them a weekly salary instead of hourly wages.  Store managers were expected to work at least a six-day, 48-hour work week.  They supervised crew members in their stores and reported to a district manager.  This position is what is commonly called a “working manager.”

Store managers’ duties and responsibilities at Dunkin Donuts involve a number of managerial tasks, including interviewing potential employees, recommending the termination of existing employees, training employees, calibrating and cleaning store equipment, processing customer complaints, placing inventory orders, maintaining store cleanliness, and performing general administrative tasks such as filling out schedules, balancing receipts, and completing paperwork.  However, in addition to their managerial duties, store managers spend a significant amount of time – sometimes 90 percent of their shifts – serving customers during peak hours and covering for absent nonexempt employees while supervising other workers.

Executives  or  worker bees?

To defend its practice of not paying Marzuq and Chantre time and a half for all hours worked over 40 in a workweek, Cadete argued that its managers were exempt from overtime requirements because they were employed in a “bona fide executive” capacity.  The DOL’s regulations define that term to mean an employee who:

  1. Is compensated on a salary basis of at least $455 per week;
  2. Has a primary duty of managing of the enterprise or a recognized department or subdivision of the enterprise;
  3. Customarily and regularly directs the work of two or more employees; and
  4. Has the authority to hire or fire employees or whose suggestions and recommendations regarding hiring, firing, advancement, promotion, or other changes of status are given particular weight.

Marzuq and Chantre did not dispute the first and third factors (a salary of at least $455 per week and the ability to direct the work of two or more employees), but they did dispute the other two factors.  Specifically, they claimed that managing the stores was not their primary duty and that they did not have sufficient authority to hire or fire other employees.  Cadete asked the court to dismiss their claims before trial. The first judge to consider the request denied it because he determined that there was a legitimate question regarding what the managers’ primary duty was and whether they had sufficient authority to hire and fire other workers.

On appeal, the U.S. District Court for the District of Massachusetts overturned the magistrate judge’s ruling and dismissed the case before trial.  The court determined that the evidence established that Marzuq’s and Chantre’s primary duty was managing the stores. Also, although they did not have the authority to hire or fire employees, their recommendations on hiring and firing decisions were given particular weight. That was enough to satisfy the authority requirement.

Regarding the question  of the managers’ primary duty, the court referenced a previous case in which managers of Burger King franchises who performed line work concurrently with their managerial duties still could be considered to perform primarily management duties if they were “in charge” of the store while they performed non-exempt work.  The court determined that Marzuq and Chantre were not significantly different from the Burger King managers, who performed substantially the same work as Marzuq and Chantre and supervised employees while serving customers.

Regarding the fourth requirement of the executive exemption – the authority to hire and fire (or make recommendations to hire and fire) – the court found that uncontested evidence showed that Marzuq’s and Chantre’s recommendations on hiring and firing decisions were given particular weight.  For example, the evidence showed that every time Marzuq felt strongly that an employee should be fired, the employee was terminated.  In sum, the court found that Marzuq and Chantre met all four requirements of the bona fide executive exemption.  Therefore, it dismissed the employees’ FLSA claims against the company.  Marzuq, et al. v. Cadete Enterprises, Inc., et al. (D. Mass. 2013).

Are changes on the horizon?

In March, President Obama directed Perez to update the FLSA regulations that were at issue in this case. Although the Department of Labor has yet to announce proposed changes to the regulations, we can speculate what changes may be coming based on the policy agenda that accompanied the announcement. The President specifically mentioned his concerns about working managers like Marzuq and Chantre, so it’s reasonable to expect revisions that will affect the bona fide executive exemption Cadete used to defend its practices.

First, the minimum salary level (currently $455 per week) is expected to rise, and the rate likely will be tied to increases in the minimum wage and possibly adjusted for inflation.  Second, the primary duties test likely will be revised as well. Currently, management employees may be deemed exempt if they perform managerial duties concurrently with nonexempt duties. That principle may be tweaked if the regulations impose a percentage threshold for the time employees must spend on management duties to qualify for the exemption.  Either of these revisions could signal a significant change to the status of many employees who are currently classified as exempt managers and trigger a wave of employee reclassification.

Takeaways

The analysis used by the court in the Marzuq case has been the law on the managerial exemption for a long time, but its life may be limited now that President Obama has directed the DOL to revise its regulations to make it harder for employers to classify employees as exempt.  An increase in the minimum weekly salary or a formulaic approach to managers’ job responsibilities would reduce the number of employees who are exempt under the bona fide executive exemption, which could lead to more lawsuits from employees who claim they have been misclassified as exempt managers.

Employers that have employees who are on the border of exempt managerial employees under the current regulations are well-advised to consult their labor and employment counsel to check on the progress of proposed revisions to the regulations and determine what they should do before the new regulations are in place.