'Managers' Who Aren't: A Guide to Employee Misclassification Lawsuits

You might not have seen it in the news this week, but two very similar cases had significant developments. Family Dollar Stores, Inc. agreed to pay around $1.15 million to settle a proposed class action brought by New Jersey employees who claimed they were owed overtime wages after being misclassified as exempt (read: not able to collect overtime pay) under federal law. Petco Animal Suppliers, Inc., meanwhile, must now face a collective action after the company was unsuccessful in getting the lawsuit tossed from California federal court. The suit claimed assistant store managers had overtime wages withheld after they were wrongly classified as exempt from overtime pay.

Wage and hour lawsuits, like those filed by Petco and Family Dollar employees, are an effective way of calling out companies that illegally underpay their workers.

In both cases, allegations were brought under the Fair Labor Standards Act (FLSA). Under the Act, managers are exempt from receiving overtime wages. Therein lies the problem: in an apparent effort to save money, more and more companies are misclassifying their workers as managers when they’re actually still lower-level employees. It’s a good trick if you can pull it off, but wage and hour lawsuits, like those filed by Petco and Family Dollar employees, are an effective way of calling out companies that illegally underpay their workers.

Who’s exempt from overtime pay under federal law?

It’s important to remember that the majority of employees are entitled to overtime pay under the FLSA. Overtime pay (meaning compensation for hours worked over 40 in a workweek, at a rate not less than time-and-a-half of regular pay) is the norm, and only specific workers in specific circumstances are exempt.

There are six different exemptions recognized under the FLSA:

• Executive - salaried managers who direct at least two full-time employees, and have the authority to hire and fire
• Administrative - salary or fee-based workers whose primary focus is non-manual office work, and whose primary duties includes exercising independent judgment and discretion
• Professional - salary or fee-based workers whose primary duties require advanced knowledge and / or judgment relating to science or learning
• Computer Employee - workers whose primary duties involve design, analysis, testing, modification, development, etc., of software and hardware, who are employed as a computer systems worker or similar position
• Outside Sales - workers whose primary duty is making sales away from the place of business
• Highly Compensated - workers who earn $100,000 annually for non-manual work

How do companies misclassify employees?

If you fall under an exemption, this means your employer does not have to pay you overtime. Because of that, some companies may attempt to misclassify their workers so they can claim they do not qualify for overtime pay. The U.S. Department of Labor specifically states that:

In the two lawsuits mentioned above, the companies argued that calling certain employees “assistant store managers” or such similar titles meant they were covered by the exemption. Courts have found this argument entirely unconvincing on multiple occasions, often pointing out that to be truly exempt, an employee must also manage other workers. True managers must also have the authority to hire and fire other employees, or the ability to significantly influence such decisions.

The long and the short of it is this: If a “manager” doesn’t actually have other workers to manage, and has no authority to hire or fire employees, they’re not a manager as understood by the FLSA. This means they are owed overtime pay if they work more than 40 hours in a week.

Whydo companies want to misclassify workers?

The answer to this one is simple: not having to pay overtime saves companies money. In cases involving nationwide chains that may employ hundreds or thousands of workers, avoiding overtime pay – which is always at least time-and-a-half – can mean substantial savings. The Family Dollar Tree lawsuit has been filed on behalf of all current and former managers who worked for the company in New Jersey since March 2009. If workers have been routinely misclassified for the past five years, that’s a lot of money Family Dollar Tree has saved. It also explains why these lawsuits get filed. If you found out you’d been underpaid, or had wages withheld that you were legally entitled to, wouldn’t you want to seek compensation? Employee misclassification lawsuits have become sadly common. Even now, in their defense earlier this week, Family Dollar Tree pointed out that:

If that’s true, it’s a problem retailers need to address, and not one workers should pay the price for.

Resources

If you think you’ve been misclassified, or aren’t being paid everything you’re entitled to, it’s important to know and assert your legal rights. The Department of Labor has produced several guides on these important matters. These include:

• Wage and Hour Division (WHD) Overtime Pay Page
• Executive Employees Under the Fair Labor Standards Act (FLSA)
• A Coverage and Employment Status Advisor (to help identify which workers are covered by the FLSA)
• The Fair Labor Standards Act (PDF)