Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

Even when employers successfully prevail on exemption defenses at the trial court level, such victories often do not signal the end of litigation –as evidenced by the recent decision of the United States Court of Appeals for the Tenth Circuit, which reversed a summary judgment decision upholding an employer’s application of the executive exemption. Maestas v. Day & Zimmerman, LLC, 2012 U.S. App. LEXIS 53 (10th Cir. Jan. 4, 2012).

Maestas concerned a group of employees providing private security at Los Alamos National Laboratory in New Mexico, in a military-like hierarchy: Lieutenant, Captain and Major (collectively the “Supervisors”). The District Court concluded that all Supervisors qualified as exempt “executives” under the FLSA because “[s]upervisors on duty at the time of a security threat do not abandon their posts and all run to personally engage the threat. They coordinate the response, and some of the supervisors go to the scene to ensure that the response is being handled appropriately. [They] are the ones in charge of ensuring an orderly response to any threat, and in charge of preparing their subordinates to face any threat that emerges. They are employed for the purpose of ‘ensur[ing] that the protective force as a whole is ready and able to do its job.’” Maestas v. Day & Zimmerman, LLC, 2010 U.S. Dist. LEXIS 139702 (D.N.M. Nov. 30, 2010).

In reviewing this decision, the Circuit court (which encompasses Utah, Wyoming, Colorado, Kansas and Oklahoma along with New Mexico) began from the premise that “a court must first determine the employee's primary duty, and then determine whether that primary duty disqualifies the employee from FLSA's protections.” Citing Supreme Court precedent relied on by the district judge, the Court ruled that the “question of which duty is the ‘primary duty’ is a question of fact.” Because the lower court had ruled on this issue as a matter of law, such error required reversal of the decision, and remand for a determination of this factual issue. 

Executive exemption cases continue to produce scattered results, with the Maestas litigation constituting but one example of the inconsistent and unclear law in this area but the lack of clarity as to which fundamental issues are to be determined as a matter of law, and which are the provenance of the jury, subject to a trial. Litigation continues, with many individuals in management positions continuing to assert claims on a national basis, due to what one judge observed as a “[l]ack of creativity and overwork . . . an undesirable by-product of working for a national chain in a struggling economy.” Taylor v. Autozone Inc., 2012 U.S. Dist. LEXIS 10207 (D. Ariz. Jan. 26, 2012) (finding store managers covered by the executive exemption and having management as primary duty "as a matter of law" based on factual test set forth at 29 C.F.R. § 541.700(a)).

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We previously discussed New York courts applying the FLSA’s executive exemption, which exempts employees whose primary duty is management (and who are paid on a salary basis) from minimum wage and overtime pay obligations. Recently, Judge Berman of the Southern District upheld the application of the exemption to a group of warehouse “Captains.” Ramos v. Baldor Specialty Foods, Inc., 2011 U.S. Dist. LEXIS 66631 (S.D.N.Y. June 16, 2011)(Berman, J).

Ramos concerned warehouse captains who oversee a team of 3-6 “pickers,” the employees responsible for compiling orders of merchandise within defendant’s warehouse and loading that merchandise onto trucks for delivery to defendant’s customers. Relying heavily on the testimony of plaintiff Jose Barranco, whom the parties stipulated would serve as the representative deponent for all eight Captain plaintiffs, the court observed that this testimonial evidence (along with other affidavits submitted by defendant from other Captains) established that each Captain was “in charge” of his pickers because captains:

·         Ensured that pickers arrive to work on time;

·         Ensured that pickers performed their job duties correctly and at an acceptable productivity level;

·         Counseled pickers who worked too slowly or made too many mistakes;

·         Gave particular assignments to specific pickers based on his or her belief that that individual picker could carry out the assigned task (i.e., obtain the correct product for the order);

·         Participated in the performance evaluations for those on their team and served as the primary source of information for the night warehouse manager (the Captains’ own supervisor) concerning pickers’ performance;

·         Could request transfer of pickers away from his or her team;

·         Had the authority to issue a warning to a picker; and,

·         Completed a picker production report for every picker on his team each night, and conducted a final sign-out and inspection of the pickers equipment. 

Calling these tasks “clearly managerial,” the court ruled, in line with DOL regulations, that these managerial tasks constituted the pickers primary duty and that each captain’s team constituted a recognized “department or subdivision” over which that captain had managerial control. Finally, the court found that while the credible evidence established that a Captain could hire or fire pickers, such finding was not determinative as “courts uniformly reject arguments that an employee cannot be an exempt executive if he cannot make hiring or firing decisions.” Id. citing Pollard v. GPM Invs., LLC, 2011 U.S. Dist. LEXIS 24199 (E.D. Va. Mar. 10, 2011) (collecting cases).

This decision highlights the fact- intensive inquiry necessary to determine if an individual is an exempt executive, especially if the individual is a “front line” supervisor responsible for hands-on review of the work performed by non-exempt employees. Employers must continually analyze the appropriateness of their classification of managers as exempt executives under both federal and state law. 

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In a case exemplifying that salary alone does not make an employee exempt, a district court in Idaho denied summary judgment to an employer in an overtime case brought by a Labor Manager earning $130,000/year. Wood v. Kinetic Sys., 2011 U.S. Dist. LEXIS 11221 (D. Idaho Feb. 4, 2011).

While it was undisputed the Plaintiff was paid $130,000 on a salary basis, questions of fact remained as to whether the Plaintiff performed primarily non-exempt duties, including working at times as a Project Superintendent, a non-exempt position he had previously held.  Noteworthy in this decision is the Court’s failure to afford any weight based on the employee’s high compensation. Curiously, the Court’s decision contained no reference to exemption to “highly compensated employees,” applicable to those earning more than $100,000 per year, where the duties test is easier to meet. 29 CFR § 541.601.  

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The subject of many FLSA actions is store managers and whether they are properly classified as exempt employees. In a recent victory for the employer community, Judge Glenn Suddaby of the Northern District of New York held as a matter of law that Express Mart properly classified its store manager in Cato, New York as exempt. Guinup v. Petr-All Petroleum Corp., 2010 U.S. Dist. LEXIS 86280 (N.D.N.Y Aug. 23, 2010).

Plaintiff Guinup was the store manager for Store 360, a combination convenience store and gas station. In her claim for overtime, she did not dispute that three of the four requirements for the executive exemption were met: namely, that she; 1) was paid on a salary basis and earned at least $455 per week; 2) customarily and regularly directed the work of two or more employees; and 3) had the authority to hire or fire employee or in the alternative make recommendations as to hiring and firing which received particular weight. Id. at * 17-18. Rather, Plaintiff argued that as a store manager she did not meet the requirement that her “primary duty [be] management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof.” Id. citing 29 C.F.R. § 541.100. 

The Court then reviewed the four factors utilized to determine whether an employee’s primary duty is management: “[1] the relative importance of the exempt duties as compared with other types of duties; [2] the amount of time spent performing exempt work; [3] the employee's relative freedom from direct supervision; and [4] the relationship between the employee's salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.” Id. In holding that each factor militated in favor of exempt status  the Court observed that Plaintiff’s duties included:

interviewing and hiring new employees, scheduling, training, writing performance evaluations, reporting employee and customer injuries to corporate, discussing sales performance and promotions with corporate, conducting surveys of competitors' gas prices and convenience store business, and controlling "shrink." Plaintiff was also responsible for making recommendations to corporate regarding product ordering and pricing, new hire pay rates, employee discipline and termination, and certain Store 360 security measures. Furthermore, Plaintiff accepted phone calls at home from her subordinates at Store 360 regarding incidents that arose at Store 360 when she was not working.

Id. at * 21. 

Based on these duties, the Court observed that “Store 360 could not have operated successfully unless Plaintiff performed her managerial functions.” As the most senior on-site employee, the Court found she was relatively free from supervision on a day-to-day basis even if she had an “active” Area Supervisor because, inter alia, the Area Supervisor was responsible for ten stores. Finally, based on the Court’s estimate of the compensation of Plaintiff’s assistant manager, Plaintiff was paid approximately 31.7% more than that employee, her highest-ranking subordinate.

While the Guinup decision is favorable to employers, the applicability of the executive exemption continues to be a fact-sensitive, highly technical analysis with divergent court opinions. Whenever a managerial employee is not the highest ranking on-site employee (as Guinup was), particular care must be taken in assessing applicability of the exemption.  And even if the employee is the highest rank on-site there must be significant exercise of managerial duties. All retail employers must focus on this issue.

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In a case involving retailer Dollar General, another federal judge has refused to hold as a matter of law that a retail store manager is an overtime-exempt “executive” for purposes of the FLSA.  Judge James Jones denied summary judgment to Dollar General in Hale v. Dolgencorp, Inc., 2010 U.S. Dist. LEXIS 62584 (W.D. Va. June 23, 2010) based upon his “fact-intensive inquiry as to each prong of the five-factor [exemption] test.”  Id. at * 8. 

Plaintiff Hale had served as a full-time clerk and then an assistant store manager before her promotion to store manager.  Even though the parties agreed that as store manager Hale satisfied the salary basis test for exemption, and that “her work included the regular direction of two or more employees,” Plaintiff testified that she spent only ten percent of her time – six hours per week – on managerial tasks and the remainder of her time “performing menial labor: cleaning restrooms, scrubbing floors, checking out customers, and stocking shelves.” Id. at * 9. She further claimed that Dollar General’s policy of limiting her quota of labor hours for non-exempt employees forced her to run the store by herself or with a skeleton crew a large percentage of the time.

Consistent with the Eleventh Circuit’s similar decision in Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233, 1257-58 (11th Cir. 2008), the Court determined that “[b]ased upon the applicable five-prong test, a reasonable juror could determine that Hale's primary duty was not management.”  This test examines: (1) "the amount of time spent in performance of  [*6] managerial duties"; (2) "the relative importance of the managerial duties as compared with other types of duties," (3) "the frequency with which the employee exercises discretionary powers"; (4) "his relative freedom from supervision"; and (5) the relationship between the employee's "salary and the wages paid other employees for the kind of nonexempt work performed by the supervisor." Id at * 5-6 citing Morgan.  On this last issue, the Court observed that based on Plaintiff’s testimony that she worked 60-70 hours per week, a factual question existed as to whether the “effective rate” at which she was paid was actually less than that paid to the non-exempt employees who reported to her.

This highly technical attack on the use of the executive exemption in retail stores has divided courts, but highlights both the technical nature of the exemption and the need to ensure that for purposes of the FLSA an exempt “executive’s” primary duty is management and that such primary duty is reflected by documents such as evaluations and disciplinary notices.

[UPDATE]  On July 8, 2010 a second district judge echoed the reasoning in Hale, denying Dollar General’s motion for summary judgment in another misclassification case brought by a store manager in Missouri.  Kanatzer v. Dolgencorp, 2010 U.S. Dist. LEXIS 67798 (E.D. Mo. July 8, 2010).  In Kanatzer, the judge found material issues of fact as to all four factors set forth in 29 C.F.R. § 541.700(a).

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