In a decision that is good news for retail employers, a federal court in Alabama recently held that retail store managers were properly classified as executive employees and, therefore, exempt from the requirements of the Fair Labor Standards Act (FLSA). See Allen v. Dolgencorp Inc. Significantly, the court ruled that seven Dollar General store managers were properly classified as "executive" employees even though they spent approximately 85% of their time performing non-exempt duties, such as cleaning the store and working the cash register.
Here, the complaining employees were store managers responsible for supervising the work of an average of seven to eight other full-time employees. The store managers were paid on a weekly salary basis and were also eligible for bonuses based on store performance. The store managers reported to district managers, who oversaw between 15 and 25 stores and were responsible for visiting their stores approximately once per month.
Store managers followed the employer’s written procedures and plans for managing the stores and setting up merchandise. The store managers performed many duties identified as "managerial" in nature by federal regulations, such as interviewing and training employees; setting employees’ hours; directing employees’ work; making promotion recommendations; handling employee grievances; seeing to the safety of employees and to the security of the premises; and controlling budgets.
However, store managers were not permitted to perform some traditionally "managerial" tasks. Store managers needed permission to enter the store after hours; could not determine employees’ pay rates; and could not hire or terminate employees without district manager approval. Store managers also could not make certain decisions with respect the operation of their stores. Moreover, the store managers spent as much as 85% of their time handling non-managerial duties, such as stocking inventory items, cleaning the store, and assisting customers.
The store managers sued, claiming they were owed overtime compensation because they had been improperly classified as exempt employees. The store managers claimed they were not exempt executive employees because their primary duties were non-managerial.
To qualify as an executive employee exempt from the FLSA’s overtime requirements, an employer must show that the employee’s primary duty is management. Here, the court made it clear that the employees’ title of "store manager" was irrelevant, since the regulations require an examination of the actual, specific duties performed by an employee to determine whether the primary duty is management. While the store managers admitted they performed many exempt management duties, they claimed management was not their primary duty because they spent as much as 85% of their time performing non-exempt tasks identical to those performed by the non-exempt employees they supervised.
The DOL regulations interpreting the FLSA provide that "[i]n the ordinary case it may be taken as a good rule of thumb that primary duty means the major part, or over 50%, of the employee’s time. Thus an employee who spends over 50% of his time in management would have management as his primary duty." The court noted that "[t]ime alone, however, is not the sole test, and in situations where the employee does not spend over 50% of his time in managerial duties, he might nevertheless have management as his primary duty if the other pertinent factors support such a conclusion."
The court went on to analyze the four "pertinent factors" that must be weighed where an allegedly exempt executive employee spends less than 50% of his or her time performing exempt management duties.
1. The relative importance of managerial duties as compared with other types of duties. The court found that the manner in which Dollar General trained, evaluated, and compensated the store managers demonstrated that managerial duties were more important to Dollar General than the non-managerial duties that the store managers performed.
2. The frequency with which the employee exercises discretionary powers. The court found that the store managers exercised independent discretion even though they were required to consult manuals or guidelines.
3. The relative freedom from supervision. The court found that despite instruction from district managers, the store managers were generally the highest level of supervisory personnel in the stores on a daily basis, particularly since district managers only visited their stores approximately once per month.
4. The relationship between the employee’s salary and the wages paid other employees for the kind of non-exempt work performed by the supervisor. The court observed that the store managers earned approximately twice as much as the next highest paid employee in their store and were the only employees eligible for bonuses. According to the court, "[t]his factor clearly supports a determination that [the store managers] are exempt."
Based on its analysis, the court held that the store managers had been properly classified as exempt executive employees under the federal FLSA and were entitled to no overtime compensation. Some other federal courts have reached the same conclusion in similar cases. For example, a federal court in Texas found Starbucks store managers to be exempt from overtime requirements even though they spent a majority of their time performing non-exempt duties, such as cleaning the store and serving customers.
However, it should be noted that this case arose in Alabama, which has not enacted a state law regarding exempt classifications for employees. Other states (for example, California) have enacted regulations regarding exempt classifications that, at times, are more challenging for employers. Employers should consult both federal and state law when classifying employees as exempt from overtime requirements.
For more information regarding this decision or the FLSA in general, please contact the Ford & Harrison attorney with whom you usually work or the authors of this article, Jeff Mokotoff, email@example.com, 404-888-3804, or Ben Fryer, firstname.lastname@example.org, 404-888-3934.