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“Managers” must be “in fact in charge” in order to be Exempt Executives, First Circuit holds. Being “in charge” under the FLSA is not merely a label!

RETAIL pic - Blog post 12-16-15

The First Circuit Court of Appeals has made it a little easier for retail managers to succeed in lawsuits for unpaid overtime wages.  In an opinion written by former U.S. Supreme Court Justice David H. Souter, the First Circuit Court of Appeals has held that Dunkin’ Donuts Store Managers are not automatically exempt from overtime pay simply because of their title or their employer’s expectations of them.

Under state and federal overtime laws, employers are permitted to pay managers on a salary basis and not pay them overtime if their primary duty is management. Many times, however, employers misapply this rule and classify workers as exempt managers even though they spend the vast majority of their time performing routine manual or nonexempt work. Workers who performed mostly manual work can challenge their exempt classifications in court and win awards for back overtime wages.

A good example is the case of Morgan versus Family Dollar stores. A federal jury in Alabama returned a $54 million verdict for a class of approximately 1400 store managers after they proved that their primary duty was not management. They proved that the vast majority of their time was spent performing physical labor or non-management tasks such as unloading trucks, stocking shelves, cashiering and customer service. The 11th Circuit Court of Appeals affirmed that judgment in 2008.

The Fourth Circuit and the Third Circuit Court of Appeals, however, have each. They affirmed rulings against the store managers mostly because the fact that store managers always retain management responsibility even when their performing nonexempt tasks.  See Grace v. Family Dollar Stores, Inc., 637 F.3d 508  (4 Cir. 2011); Itterly v. Family Dollar Stores, Inc., No. 14-1274  (3d Cir. April 9, 2015).

Most recently, on December 9, 2015 the First Circuit Court of Appeals weighed in.  In the case of Marzuq v. Cadete Enterprises, Inc., No. 14-1744, 2015 U.S. App. LEXIS 21301 (1st Circuit Dec. 9, 2015), the court reversed a judgment against the employee, and remanded the case with specific instructions on how to proceed. The court discussed the history of appellate court rulings in this area and issued a ruling which should set clear guidelines for litigants in this area for the near future.

The Facts:
Marzuq worked as a manager at a Dunkin’ Donuts store in Massachusetts from 2007 until 2012. They were scheduled and expected to work at least six days a week for 48 hours. In fact he usually worked seven days per week and more than 60 hours per week in part because he substituted for crew members who missed their shifts for sickness or other reasons.

The Rulings:
The trial court dismissed Dunkin Donuts ruling that Marzuq was primarily a manager because he was always responsible for the management of the store, even if it were true that he spent the vast majority of his time performing non-management duties.  This argument was successful before both the 3d and 4th circuits in the Family Dollar cases.  The First Circuit disagreed.

The First Circuit first emphasized that the requirement that an employee’s primary duty be management is not simply a matter of labels and titles.  “[B]eing in charge is not merely a label belied by the realities of the workplace.  … Whether plaintiffs are [exempt] depends both on whether they were in fact “in charge” while at their stores and whether, in the particular circumstances of this case, their being “in charge” compels the conclusion that management was their primary duty.”  Marzuq, 2015 U.S. App. LEXIS 21301, at *19.

The court then analyzed the record and found that there were genuine issues of material fact on these questions.  It found that “the bulk of Marzuq’s workweek was spent performing nonexempt work, including serving customers and cleaning.”  Marzuq, 2015 U.S. App. LEXIS 21301, at *22.

Importantly, the First Circuit was not impressed by Marzuq’s title or job description (which listed only management duties):

If, contrary to their job descriptions, managers could not prioritize their supervisory duties because “quality Customer Service” demanded that they regularly perform tasks ordinarily assigned to hourly employees, a factfinder could reasonably conclude that plaintiffs’ exempt and nonexempt duties were equally important to the successful operation of their restaurants.”  Marzuq, 2015 U.S. App. LEXIS 21301, at *23.

As to Marzuq specifically, the Court wrote:

Nonetheless, the record contains evidence indicating that Marzuq’s supervisory role was, at least at times, overwhelmed by his non-managerial tasks. More than once, he clarified that he “tried” to exercise his managerial duties, and he reported needing to do various tasks that would take them away from the customer service area of the store (cleaning the bathroom, cleaning up outside the store, landscaping) and, hence, appear inconsistent with employee supervision. Marzuq, 2015 U.S. App. LEXIS 21301, at *26.

Later, the Court re-emphasized the importance of analyzing whether or not a manager is “in fact in charge.”

In addition, he acted as “Capt.” of the store even when he was off-duty, fielding phone calls from employees and going into work if necessary to resolve problems. Yet, given the competing demands routinely placed on Marzuq, a factual dispute exists as to how much of his workweek he actually was “in charge” of the store. Allocating percentages of Marzuq’s work hours to exempt and nonexempt duties is thus not a straightforward calculation. Marzuq, 2015 U.S. App. LEXIS 21301, at *28.

Finally, addressing the issue of whether Marzuq’s primary duty “as a whole” was management, the court made its most powerful observation, i.e., that success for the employer would be “unlikely”:

Indeed, if a factfinder determined that plaintiffs’ nonexempt duties regularly consumed more than forty hours per week, and that plaintiffs did not, in fact, simultaneously perform managerial duties during a substantial portion of that time, a conclusion that management was plaintiffs’ primary duty seems unlikely — even if, as Marzuq testified, he spent at least another twenty to thirty hours each week on exempt work. Taken as true, the fact that Marzuq worked seven days a week, logging a minimum of sixty-six hours and often more, together with a finding that most of those hours were exclusively devoted to nonexempt work, would suggest that he effectively was doing two jobs, for one salary: a fulltime nonexempt position and a part-time exempt one. In that scenario, a reasonable factfinder might be reluctant to characterize the “part-time” managerial position as his primary duty for the company. (emphasis added). Marzuq, 2015 U.S. App. LEXIS 21301, at *36.

The Takeaway
The importance of this ruling cannot be overstated. Previously, the only circuit court opinion which helped plaintiffs prevail in retail executive misclassification cases was Morgan v. Family Dollar.  In the employers’ win column stood both Burger King decisions (1st and 2d Circuit) and Grace v. Family Dollar Stores, Inc., 637 F.3d 508 (4 Cir. 2011); Itterly v. Family Dollar Stores, Inc., No. 14-1274 (3d Cir. April 9, 2015).

This ruling addresses those four cases and sets forth a comprehensive, thorough and detailed analysis to guide litigants going forward. If this ruling is followed, future courts will no longer dismiss the claims of employees challenging their exempt executive status.

Labels are not enough. Courts must inquire deeply into the facts of the case and address whether or not these purported executives are “in fact in charge” and whether or not they “in fact, simultaneously perform managerial duties during a substantial portion of that time.”  Employers who cannot meet these burdens will fail. It will not be enough going forward for employers to simply show that their “managers” hold a managerial title and are responsible for management results. With this ruling the pendulum at least momentarily has swung back towards employees on this important issue, and has opened the door to the courthouse for them to prove that they are primarily hourly workers and thus entitled to overtime pay.