Recently, a federal court in Connecticut approved a $2.9 million settlement in a case in which employees alleged that they were misclassified as exempt. The lawsuit, filed in March 2014 on behalf of as many as 3,000 managers and store leaders at Payless Shoesource, Inc., alleged that those individuals were misclassified as exempt employees under the Fair Labor Standards Act’s (FLSA) executive exemption and that as a result of the misclassification, the employees were entitled to overtime wages for hours worked over 40 hours per week. Under the FLSA, to qualify for the executive exemption an employee must meet all of the following criteria:
- The employee must be paid at least $455 per week on a salary basis (though the DOL hopes to more than double this amount);
- The employee must “have a primary duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
In part, the employees claimed that they did not meet the test because they did not “customarily and regularly” supervise at least two employees. According to the plaintiffs, company records revealed the misclassification error and Payless reclassified the employees prior to the filing of the lawsuit. Even though Payless had attempted to correct its error, the employees were still able to file suit for wages owed during the period of misclassification that was within the statute of limitations.
This settlement highlights the importance of ensuring that employees are properly classified. Misclassification typically applies to an entire group of employees in the same job position, so these cases are prime candidates for collective actions. Employers should conduct periodic audits of employee classification and other wage/hour issues to help protect themselves against costly lawsuits.