HOME Manager Misclassification: Still Business as Usual? In 2001, a federal court in Tennessee hit Treetop Enterprises, Inc., a Waffle House franchisee, with a damage award over $2.8 million (plus prejudgment interest and attorneys fees) in a lawsuit claiming that Treetop had misclassified its managers as exempt from overtime compensation under the Fair Labor Standards Act (FLSA). While shocking at the time, it proved to be the precursor to a cottage industry of copycat lawsuits -- with companies such as Starbucks® and others being hit with big damage awards or agreeing to large settlements. Although claims alleging misclassification of managers have been big news in the hospitality industry for the last five years, it still is “business as usual” for plaintiffs lawyers. Indeed, Pizza Hut’s recent $12.5 million settlement and a recent adverse decision against Ocean Beach Properties d/b/a Parisian Hotel Apartments both serve as stark reminders as to the importance of reviewing whether your managers are properly classified. If all of your managers are paid on an hourly basis and receive overtime compensation for all hours worked, then you have little to worry about. If your managers do not receive overtime compensation, then you must make sure that they satisfy the FLSA’s overtime exemption requirements. Generally, both state and federal laws initially require exempt managers to be paid on a salaried basis, i.e., they receive a set amount of compensation each week regardless of the amount or quality of the work performed. This means that while certain limited deductions are permitted, no deductions are permitted from the managers’ salary for things such as cash register shortages, rule violations, etc. Once this “salaried basis test” is met, the focus turns to whether the manager is performing the types of duties required to be exempt. Because many managers, particularly assistant managers, have little discretion as to business matters and spend much of their time cleaning, cooking, expediting, refilling water glasses, etc., they do not meet the “duties test” part of the exemption. While state laws can (and often do) set different standards for the “duties test,” the federal law changed in 2004 to make clear that in order to be exempt, the manager must supervise the equivalent of two, full-time employees, have discretionary authority, and be able to make, or effectively recommend, personnel changes. While the new regulations emphasize that time spent performing nonexempt tasks (e.g., cleaning, cooking, etc.) is not determinative, the regulations did eliminate the “sole charge” exception, which had allowed the exemption to be claimed for the employee left “in charge” of the facility. Plaintiffs’ lawyers continue to sue hospitality employers for misclassification of managers; thus, time spent reviewing whether your managers are properly classified is time well spent. If you want to know more about proper employee classification, please contact Doug at duerr@elarbeethompson.com.   [PRINTER FRIENDLY VERSION]