Restaurant Industry Newsletter - May 2013: Would You Like Fries, or a Collective Action Overtime Lawsuit, With That Burger?

by FordHarrison
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Would You Like Fries, or a Collective Action Overtime Lawsuit, With That Burger?

A number of well-known restaurant chains have been hit with lawsuits over the last few years alleging that their exempt managers or assistant managers were indeed non-exempt and therefore should have been paid overtime.  These cases demonstrate that simply calling employees managers and paying them on a salaried basis does not insulate restaurant owners from liability under the overtime provisions of federal and state wage and hour laws.

The federal Fair Labor Standards Act ("FLSA") guarantees most employees a right to receive "overtime pay" – pay at "time and a half" their regular hourly rate – if they work more than forty hours in a workweek.  Of course, the overtime requirement does not apply to all employees.  The most well-known of the many exceptions are the so-called "white collar exemptions" for bona fide executive, administrative, professional and outsides sales employees.  Employees who meet certain salary requirements and primarily perform the duties encompassed by these exemptions are not entitled to overtime pay under federal law or generally state law, although state laws may vary.  While restaurant managers may be exempt under these laws, many restaurant owners have discovered in recent years, to their dismay, that it's not quite that simple.

In arguing that managers and assistant managers are exempt from overtime pay requirements, restaurant owners generally rely on the "executive" exemption.  To qualify for this exemption, the manager must be compensated on a salary basis at a rate of at least $455 per week and must primarily perform the duties of a true manager.

While the first prong of this test – payment on a salary basis – may seem simple, it contains some traps of which employers must be aware.  Most notably, an employer may lose the right to treat an employee as exempt by "docking" the employee's pay so the employee receives less than his or her normal, predetermined salary for a particular pay period.  But what if the employee misses work because the employer reduces everyone's hours when business is slow, or due to a suspension for violating the restaurant's safety rules?  Federal regulations provide that employers may dock an exempt employee's pay for certain limited reasons without losing the exemption, including absences of one or more full day(s) due to sickness or disability under limited circumstances, and some absences arising from penalties or suspensions for violating certain company policies.  Generally speaking, employers may not reduce a salaried employee's pay due to a temporary reduction in hours when business is slow.

Most overtime litigation involving restaurant managers and assistant managers involves disputes over whether the employees truly are performing the duties of an exempt employee.  To qualify for the exemption, the employee must:

  • Have as his or her primary duty managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  • Customarily and regularly direct the work of at least two other full-time employees or their equivalent; and
  • Either have the direct authority to hire or fire or have the power to make suggestions and recommendations that are given weight as to such decisions.

In the restaurant industry, issues frequently arise when managers spend part of their time supervising other employees, but also "pitch in" to help serve customers or perform other non-exempt tasks, such as acting as a host or hostess, waiting tables, or even busing dishes.  In these cases involving "concurrent duties," federal regulations provide valuable guidance. 

  • First, the regulations provide that exempt employees generally will make their own decision whether to perform non-exempt duties at a particular time (usually while still supervising others), while non-exempt employees generally are told what to do by a supervisor. 
  • Additionally, the federal regulations look at an employee's "primary duties" to determine if the employee truly is exempt.  According to those regulations, the term "primary duty" means the principal, main, major or most important duty that the employee performs.  The determination is based on all of the facts, including:
  • the relative importance of the exempt duties as compared with other types of duties;
  • the amount of time spent performing exempt work;
  • the employee's relative freedom from direct supervision; and
  • the relationship between the employee's salary and the wages paid to other employees for the kind of non-exempt work performed by the employee.

While the amount of time spent on exempt versus non-exempt tasks is not dispositive, the regulations provide that an employee who spends more than half of his or her time on exempt tasks usually will be considered exempt.  As noted, however, this is only a guideline; in one major case, the court ruled that even though a restaurant manager claimed that she spent 75% of her time on basic "line" tasks, she was properly classified as exempt because she supervised other employees at the same time, regularly engaged in other important managerial duties, and was paid more than the non-exempt employees performing many of these same line duties.

In light of these statutes and regulations, what can restaurant owners do to protect themselves from employees who might want to serve a side order of "overtime lawsuit" along with the soup of the day?  Practice pointers include the following:

  1. Know the rules before docking the pay of any exempt employee, to ensure that doing so will not threaten the employee's exempt status.
  2. Keep in mind that titles do not tell the whole story.  An employee who has the title of manager or assistant manager may still be non-exempt, and therefore entitled to overtime pay, if his or her primary duties do not involve supervising others and managing the establishment.

Being familiar with these rules and getting good legal advice from experienced employment counsel can help restaurant owners ensure that the "special of the day" isn't an overtime lawsuit by their managers or assistant managers.

If you have questions regarding this article, please contact the author, Andrew Tanick, atanick@fordharrison.com, who is a partner in our Minneapolis office and member of FordHarrison's Restaurant Industry practice group, or the FordHarrison attorney with whom you usually work.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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