The Eleventh Circuit has affirmed a jury verdict of more than $35 million against Family Dollar Stores, Inc. for misclassifying its store managers as exempt from overtime pay.
The case, Morgan v. Family Dollar Stores, Inc., involved an opt-in class of 1,424 store managers in a collective action under the Fair Labor Standards Act. During an eight-day trial, the Plaintiffs established that the store managers routinely worked 60 to 70 hours a week. Family Dollar argued the store managers were executives within the meaning of the FLSA and exempt from its overtime pay requirements. However, at the close of the evidence, the district court granted judgment as a matter of law to 163 of the 1,424 Plaintiff store managers, because the evidence showed that they did not satisfy the third requirement in the executive exemption test, i.e., that they customarily and regularly directed the work of two or more other employees. As to the remaining Plaintiffs, the jury found that they were not exempt executive employees.
The district court entered a final judgment of $35,576,059.48 against Family Dollar consisting of $17,788,029.74 in overtime wages and an equal amount in liquidated damages.
The appeal centered on the applicability of the executive exemption. To establish an employee is a bona fide executive, an employer must show: (1) the employee is “[c]ompensated on a salary basis at a rate of not less than $455 per week”; (2) the employee’s “primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof”; (3) the employee “customarily and regularly directs the work of two or more other employees”; and (4) the employee “has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other
change of status of other employees are given particular weight.” 29 C.F.R. § 541.100(a)
With regard to the primary duty requirement, the Eleventh Circuit's opinion notes that FLSA regulations specify that “[t]ime alone..., is not the sole test” and thus “[e]mployees who do not spend more than 50 percent of their time performing exempt duties may nonetheless meet the primary duty requirement if the other factors support such a conclusion.”
The opinion also notes that the FLSA regulations clarify that “[c]oncurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption if the requirements of § 541.100 are otherwise met.” See 29 C.F.R. § 541.106(a). In other words, the Eleventh Circuit noted, "an employee’s performance of nonexempt work does not preclude the exemption if the employee’s primary duty remains management. Similarly, an employee whose primary duty is to perform nonexempt work does not become exempt merely because she has some responsibility for occasionally directing the work of nonexempt employees."
Applying these principles, the Eleventh Circuit upheld the jury's verdict. The evidence at trial showed store managers spent 80 to 90% of their time performing nonexempt, manual labor, such as stocking shelves, running the cash registers, unloading trucks, and cleaning the parking lots, floors, and bathrooms.
As to the relative importance of store managers’ managerial duties compared with their nonexempt duties, the Eleventh Circuit held that this factor also weighed in favor of the jury’s finding that store managers are not exempt executives. While the store managers’ job description includes managerial duties, the description of the store managers’ “Essential Job Functions” provides that store managers must do the same work as stock clerks and cashiers. "Rather than treat these manual tasks as an incidental part of a managerial job," the opinion notes, "Family Dollar describes them as essential. A large amount of manual labor by store managers was a key to Family Dollar’s business model given each store’s limited payroll budget and the large amount of manual labor that had to be performed."
The evidence also showed that store managers spent only 10 to 20% of their time on exempt (i.e., managerial) work, because most of their work was dictated by company manuals and directives and did not involve the exercise of managerial discretion:
Plaintiffs presented evidence that store managers rarely exercised discretion because either the operations manuals or the district managers’ directives controlled virtually every aspect of a store’s day-today operations. The manuals and other corporate directives micro-managed the days and hours of store operations, the number of key sets for each store, who may possess the key sets, entire store layouts, the selection, presentation, and pricing of merchandise, promotions, payroll budgets, and staffing levels. The manuals even instruct store managers on the smallest details, such as how to arrange clip boards, what items go in each of the four drawers of the single file cabinet, and how to remove spots and chewing gum from store mats. The few decisions not mandated by the manuals and corporate headquarters are vested in the district manager. These decisions include the power to change store hours, close for bad weather, approve changes to store layouts, establish all employees’ initial rates of pay, approve all pay raises, set payroll budgets, control the total labor hours allocated to each store, approve the hiring and firing of assistant managers, and even approve the use of appliances such as coffee pots. Even when a store manager exercised discretion in scheduling employees for the week, she did so within the strict constraints of mandatory store hours, a limited payroll budget, a prohibition on overtime work by hourly employees, and a staff scheduler. This evidence supports a reasonable jury finding that Family Dollar’s store managers had few, and infrequently exercised, discretionary powers.
The evidence also showed that store managers had little freedom from direct supervision. "Indeed," the opinion notes, ample evidence showed that the combination of sweeping corporate micro-management, close district manager oversight, and fixed payroll budgets left store managers little choice in how to manage their stores and with the primary duty of performing manual, not managerial, tasks."
For employers, the Morgan case highlights the distinction between job titles and job duties. Duties are what count in determining whether an exemption applies. And the burden in proving the exemption always remains on the employer. Before classifying employees as exempt, it is important for employers to make a careful analysis of the employees' actual job duties and measure them against the exemption criteria. The Department of Labor's fact sheets, such this one on the executive exemption, are useful guides.
Dollar Stores apparently did not do a careful analyis before classifying its store managers as exempt. In one of the most striking excerpts from the trial transcript, the court cited the following exchange between Plaintiffs' counsel and Dollar Stores' Senior Vice President of Store Operations about how the company reached its decision to classify all its store managers as exempt:
Q. Now, my question is, did you make that decision?
A. No, sir.
Q. Did your boss, Mr. Barkus, make that decision?
A. To my knowledge, it’s been in place -- it was in place when I came
here 29 years ago. So --
Q. Okay. So, do you know anybody that will own up to that decision;
say, “that was my decision”?
A. I do not.
Q. Mr. Levine, has he ever told you that’s his decision?
A. No, sir.
Q. Can you give us any clue? And the reason I’m asking you this, I
asked you this in the deposition and we’ve been asking a lot of people
in depositions: Who made this decision, do you know?
A. I do not.
Needless to say, an employer's explanation that "we have always done it this way" does not establish a legal defense.
For employment law practitioners within the Eleventh Circuit, the Morgan case is essential reading in understanding the executive exemption. The opinion also contains a useful discussion on the use of representative testimony in an FLSA collective action trial.
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