“Bring me four fried chickens and a coke.” –Joliet Jake.
Wait, managers who are paid salaries are supposed to be exempt from overtime under the Fair Labor Standards Act, right? So why should you ever be paying them overtime? And, you don’t track their hours. How could you even compute their overtime premium? How does this make any sense?
Well, a former Red Lobster manager, who says the restaurant chain improperly failed to pay him and all similarly situated workers overtime, filed a proposed nationwide collective action against the company in Illinois federal court Friday, July 28, 2017. Marcus Jordan alleged he regularly worked more than 50 hours a week as a restaurant manager at a Joliet, Illinois Red Lobster from August 2014 to April 2016. Red Lobster was founded in the late 1960s, so it’s not out of the question that Jake and Elwood Blues (the “Blues Brothers”) ate at this very location. You remember how fond of shrimp Joliet Jake was, and they grew up in Joliet. But, I digest.
Mr. Jordan makes the case that no “restaurant manager” (“RM”), whether a kitchen manager, bar manager, front-of-house manager or assistant manager, actually performs the requisite managerial duties to be exempt from overtime under the FLSA. He says they’re basically worker bees who should have been paid one and one half times their regular hourly rate for every hour worked over forty in a work-week. They were not. Whoops!
Plaintiff Marcus Jordan says that when they are on shift, all “managers” spend the majority of their time performing tasks such as greeting and waiting on customers, expediting and serving food, cooking and preparing food, clearing and setting tables, washing dishes, counting inventory, cleaning the restaurant, and performing general customer service.
Anybody see a problem here? Anyone? Bueller? Bueller? (Sorry, another Chi-Town movie reference—Ferris Bueller’s Day Off.)
The answer lies not in “Voo Doo Economics,” but in the Salary Basis exemption from overtime under the FLSA: To qualify for the executive exemption (the one that could apply to the RMs) under the FLSA, each employee must satisfy the following:
- The employee must be compensated: on a salary or fee basis; and
at a rate at least equal to the minimum required threshold (currently $455 per week).
- The employee’s primary duty must be managing the business, or managing a customarily recognized department or subdivision of the business.
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
- 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.
Mr. Jordan says that Red Lobster RMs don’t have that kind of authority or those duties, and his lawsuit alleges that Red Lobster employs RMs pretty much the same in all the nation’s restaurants. He also says that Red Lobster knows this is a violation but doesn’t keep track of the hours worked by any of its RMs nonetheless. He’s setting up the restaurant chain for a willful violation. Willful means on purpose.
Now, these are just allegations in a lawsuit. But if they are true, Red Lobster (Golden Gate Capital) could have an expensive problem on its hands, and industry buzz is that Red Lobster is for sale—it’s a “celebration of seafood.” An employer can’t just pay an employee, or a class of employees, a salary, call them all managers, and then be free of overtime obligations, if these employees work more than forty hours per work week. The “white collar” exemption calls for both a salary and a duties analysis. And for any of us who have ever worked in the restaurant biz (I did one summer in college-ouch), we know that almost no one works fewer than forty hours.
Defending overtime claims from potentially misclassified workers is also challenging because if you haven’t required them to keep track of their hours, they are permitted lots of leeway in testifying what were their average hours worked per week. I know. Seems unfair, but the idea is that if they ought to have been treated as non-exempt from overtime (we often shorthand that as “hourly”), you should have required the workers to keep track of their hours in the first place. Oh, and that’s another potential violation too. The recordkeeping requirements. Gotta keep track. Courts will compute the overtime premium using that tricky method everyone learned in third grade (but not the Blues Brothers) called long division. Divide the salary by the hours to get the regular rate. Multiply that by one and one half times the hours alleged worked over forty. Over the two-year period Mr. Jordan is suing for, that’s likely an exciting number. Multiply that over the entire workforce, and it’s staggering. If he and the collective “class” can prove these were willful violations, then double your money and pay the lawyers. Pro-tip: the burden is really on the employer to prove it wasn’t willful.
Here’s a takeaway. For anyone you pay a salary because you consider her, him, or them to be “managers,” double check that their duties and responsibilities qualify for one of the exemptions from overtime. Because if you get this question wrong, your company and even officers and owners face liability for the unpaid overtime, double damages, and attorneys’ fees.
And did you know that the FLSA permits a safe harbor provision as a defense for these claims? A provision to include in policies or handbooks? When you want to avoid double damages and attorneys’ fees, you need all the help you can get.
So, let’s review the Basics:
- The white collar exemption requires that you pay employees on a salary basis, that means the same amount per work week, regardless of the quality or quantity or work.
- That salary currently is $455 per week, but if you’ve read my prior posts, you know that is in a state of flux.
- The duties and responsibilities must include the direction of at least two or more other full-time employees.
- The employee must have some authority to hire and fire or have the power to recommend hiring, firing, advancement, or promotion, etc.
- Consult with counsel to make sure you have and are following the safe harbor provision I mentioned. It works if you use it.
Whether they are managers in restaurants or any other sector of the service industry that so predominates our economy, don’t just pay a salary and overlook the duties analysis. If you are an HR professional, alert your company to these pitfalls. Conduct thorough salary studies across your workforce. Because as everyone puts wage stagnation and economic growth under the microscope, an overtime violation is the low hanging fruit. And don’t forget, “Shrimp is the fruit of the sea,” according to Bubba Blue (Forrest Gump).