The retail industry is notoriously prone to FLSA collective action misclassification lawsuits because there are many levels of management, especially so-called lower management, where the employees may/may not discharge actual/true supervisory powers. Another illustration of this principle has resulted in a large dollar settlement that will pay employees known as “sales team managers” a fairly large amount of money, although the exact amount has not been disclosed. What was disclosed is that the plaintiffs’ lawyers will receive almost two million dollars in attorney fees! The case is entitled , and was filed in federal court in the Eastern District of Texas.

The Judge examined the six-factor test under the Fair Labor Standards Act for granting approval to such settlements and concluded that there was no evidence of fraud and also, importantly, that the settlement addresses the plaintiffs’ possibility of prevailing on the merits. The Court stated that “after considering the factors, the court finds that the settlement agreement should be approved because it is a fair and reasonable settlement of a bona fide dispute.”

The hundreds of sales team managers claimed that they performed the same job duties as their subordinates, such as selling, restocking products and maintaining the organization of the store and the clothing racks. The employees denied that they performed any managerial tasks, such as hiring or firing. In sum, they alleged that although they had the title of “manager,” they were not at all performing the tasks required under the Part 541 regulations that address exempt status. There were 384 workers who had opted in.

As is typical in these cases, the parties devised a formula for determining the amounts of money workers will receive. It will be based on the number of weeks they worked in the three years before they opted in. It remains unclear the aggregate amount of money that the employees will receive, as that (important) fact was redacted.

The Judge noted that the fourth factor, the “probability of the plaintiffs’ success on the merits,” was the “most important factor absent fraud and collusion.” The Judge observed that the employees “face considerable hurdles in succeeding on the merits.” Thus, the Judge concluded that the settlement represented a “fair and reasonable recovery.”

The Takeaway

As these lawsuits are so common, my advice to my clients for years has been to treat lower level managers as non-exempt and pay them hourly. It is possible to take the salary being paid and “back into” a correct hourly rate so that, even with the anticipated overtime worked, the employer’s labor costs will not be increased. That puts an end to the threat of a misclassification lawsuit.

It works…

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