Burlington Coat Factory’s $19 Million “Manager” Overtime Settlement, Another Big Employee Misclassification Hit
Companies of all sizes have taken big lawsuit hits for misclassifying managers as exempt employees – not entitled to overtime pay, merely because they are paid a salary. Under federal and New York law, in order to assert an exemption from paying overtime to its employees an employer must be prepared not only to show that the employee is paid a salary, but also that the salary is of a certain minimum amount and that the employee meets the “duties test.”
In New York City, for example, the minimum salary requirement to trigger the overtime exemption is $1,125 per week. If that threshold is met, the employer should consider whether the manager meets the duties test under either the “Executive Exemption” or “Administrative Exemption”.
To satisfy the duties test under the Executive Exemption, the employer bears the burden of establishing that a manager has the authority to hire or fire employees, regularly direct the work of two or more employees, and regularly exercise discretionary powers, such as formulating policies or practices and committing the employer in matters that have significant financial impact.
Under the Administrative Exemption, the manager’s primary duty must consist of the performance of office or non-manual fieldwork directly related to management policies or general operations; the manager must customarily and regularly exercise discretion and independent judgment; and the manager must regularly and directly assist an employer or employee employed in a bona fide executive or administrative capacity.
A recent example of exposure employers face for misclassifying employees as exempt from overtime pay involved Burlington Coat Factory. In two cases filed in a New Jersey federal court, which were eventually consolidated, Burlington assistant store managers alleged that they were entitled to overtime pay even though they were paid a salary because they did not regularly exercise independent judgment and discretion in their job. Rather, according to the managers, their work activities were limited to building displays, stocking shelves, assisting customers, stacking merchandise and unloading trucks. Earlier this summer, after several years of extensive discovery, Burlington agreed to pay a total of $19,613,900 to over 1,000 assistant store managers.
Misclassification claims can be particularly devastating to small and midsize companies, who do not have the resources that a company like Burlington does. Bottom line, employers must be careful that their managers meet the salary requirement and the duties test to avoid an overtime lawsuit disaster. See, Goodman v. Burlington, Case No. 11-cv-04395 (U.S. District Court, New Jersey); Kawa v. Burlington, 14-cv-2787 (U.S. District Court, New Jersey).
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