DOL Explains that Training Program for Exempt Managers Does Not Destroy FLSA Exemption During Training Period Because “Holistic” Approach is Taken.

Yesterday, the federal Department of Labor released a number of administrative letter opinions from last month, one of which concerned a training program for long-time retail store managers who wished to be promoted to regional store managers. (FLSA 2008-19). Both the store managers and the regional managers constituted exempt managerial positions. The question posed was whether the store managers lost their exemption during the training period because the store managers would perform little or no exempt work during about half of the seven week training period (while they shadowed the regional managers).

According to the inquiry, “[d]uring the training period, each of the store managers accompanies an area sales manager on visits to area stores, reviews store paperwork, addresses issues with the managers of the stores visited, investigates inventory shortages and violations of company policy, and attends sales meetings. At the beginning of the training period, the trainee simply “shadows” the area sales manager, but as the training progresses, the area sales manager delegates more and more duties to the trainee. By the end of the training period, it is the area sales manager who “shadows” the trainee.” During the training period, “trainees analyze sales figures, product returns, and inventory data to determine store performance; review data with the store manager and suggest improvements; review the hours worked by employees; approve payroll; determine whether the store manager allocates labor hours effectively and, if not, suggest improvements; audit lottery ticket sales; and work with the store manager to control losses.” Thus, for the first few weeks, the trainee performs little or no exempt work. After the training period ends (or if the trainee fails to complete the program), the trainee returns to a store manager position until a potential regional manager position opens and the manager successfully applies for it.

The employer was concerned about the trainee’s exempt status because “29 C.F.R. § 541.705 states, “exemptions do not apply to employees training for employment in an executive . . . capacity who are not actually performing the duties of an executive . . . employee.” In addition, “exemptions normally apply on a workweek by workweek basis.” However, there is also a federal district court case in which the plaintiff was found to be exempt during a period of training that was between two periods in which he qualified as an exempt systems engineer. Booth v. EDS Corp., 799 F. Supp. 1086, 1093 (D. Kan. 1992). (“[The plaintiff] has pointed to no evidence in the record that indicates that he or EDS considered phase two of the [training] program to be a separate employment position.”).

According to the Acting Wage and Hour Administrator, “[t]he fact that, during at least some of the weeks of training, the store managers do not perform significant amounts of exempt work, in and of itself, does not cause the store managers to lose their exempt status because the primary duty test for executives need not be met each and every workweek in all cases. In its 2004 revisions to 29 C.F.R. Part 541, the Department included this discussion in the preamble to the final regulations:

“As stated in the 1949 Weiss Report at 61, the search for an employee’s primary duty is a search for the ‘character of the employee’s job as a whole.’ Thus, both the current and final regulations ‘call for a holistic approach to determining an employee’s primary duty,’ not ‘day-by-day scrutiny of the tasks of managerial or administrative employees.’ Counts v. South Carolina Electric & Gas Co., 317 F.3d 453, 456 (4th Cir. 2003) (“Nothing in the FLSA compels any particular time frame for determining an employee’s primary duty”). To clarify this ‘holistic approach,’ the Department has reinserted in subsection (a) the language from current 541.304 that the determination of an employee’s primary duty must be based on all the facts in a particular case ‘with the major emphasis on the character of the employee’s job as a whole.’ 69 Fed. Reg. 22,122, 22,186 (Apr. 23, 2004) (emphasis in original).”

In this situation, the DOL found that “there is no reason to believe that the seven-week training program itself is an employment position in the company. Nor is it reasonable to conclude that the store managers’ primary duty changes during the seven weeks of training. These employees, who we are to assume have been employed as bona fide exempt store managers for years, remain exempt during the seven weeks of management training because their primary duty continues to be that of an exempt store manager. The training provided is of limited duration and does not consist of the performance of work that would otherwise be performed by nonexempt workers. The managers return to their normal exempt store manager duties following the training. Under these circumstances, where the trainees are employed in exempt positions and are temporarily reassigned to training for a different exempt position, it is our opinion that the exemption is not lost during the training period.”

Insomniacs can read the full letter opinion letter at http://www.dol.gov/esa/whd/opinion/FLSA/2008/2008_12_19_19_FLSA.htm.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Finds FLSA Overtime Claim of Gas Station Manager to be Empty

Earlier today, the Sixth Circuit Court of Appeals in Cincinnati affirmed the dismissal on summary judgment of a FLSA overtime claim brought by a former store manager for Speedway SuperAmerica on the grounds that she was an exempt managerial employee. Thomas v. Speedway SuperAmerica LLC, No. 06-3768 (10/30/07). The manager (terminated in 2003 before the new FLSA exempt regulations were promulgated in August 2004) testified that she generally worked more than 50 hours each week and met with her own supervisor only once every 4-14 days.

She also testified that she “spent approximately sixty percent of her work time performing non-managerial tasks, such as stocking merchandise, sweeping floors, cleaning bathrooms, operating the register, and performing routine clerical duties. Even though [she] devoted a majority of her time to nonmanagerial activities, she testified that her “primary duty was to manage [her] store,” which required her to perform many management functions. She supervised, interviewed, hired, trained, and disciplined employees; she prepared weekly work schedule for her employees; she resolved employee complaints; she monitored her employees’ performance with formal evaluations; she recommended salary or merit increases for her employees (most of which were accepted by her district manager); she frequently recommended employee terminations to her district manager; and she even terminated some employees without prior approval from her district manager (although she would later notify her district manager of these unilateral termination decisions).

Because the plaintiff earned a base salary of $522 per week, the court applied the “short test” under the old FLSA regulations to determine whether she was a bona fide executive employee. “An employee qualifies for the executive exemption under the short test if: (1) her “primary duty consists of the management of the enterprise” and (2) her primary duty “includes the customary and regular direction of the work of two or more other employees.”

The central issue in the case was whether the plaintiff “had management as her primary duty. Numerous courts have addressed this issue in factually similar cases, and all have held that the plaintiff’s primary duty consisted of management.” In reviewing prior cases, the court stressed that it could not simply “rely upon the plaintiff’s or the employer’s description of the plaintiff’s position or authority; instead we must “look at the plaintiff’s actual duties” to determine whether she qualifies for the executive exemption.” “’Primary duty’ does not mean the most time-consuming duty; it instead connotes the “principal” or ‘chief’ — meaning the most important — duty performed by the employee. . . . Nevertheless, “[t]he amount of time spent in performance of . . . managerial duties is a useful guide in determining whether management is the primary duty of an employee.”

“[I]n situations where the employee does not spend over 50 percent of [her] time in managerial duties, [she] might nevertheless have management as [her] primary duty if the other pertinent [factors] support such a conclusion.” 29 C.F.R. § 541.103 (2003). These factors include: (1) “the relative importance of the managerial duties as compared with other types of duties”; (2) “the frequency with which the employee exercises discretionary powers”; (3) “[the employee’s] relative freedom from supervision”; and (4) “the relationship between [the employee’s] salary and the wages paid other employees for the kind of nonexempt work performed by [her].”

Under the first factor, the court “compare[d] the importance of the plaintiff’s managerial duties with the importance of her non-managerial duties, keeping in mind the end goal of achieving the overall success of the company.” In analyzing that first factor, the court compared the plaintiff’s non-managerial duties (which included stocking merchandise, sweeping floors, and cleaning bathrooms) with her managerial duties (which include hiring employees, training employees, and assigning the weekly work schedule) . The court observed that if the plaintiff failed to perform her nonmanagerial duties, the station would still function, albeit much less effectively. If, on the other hand, she failed to perform her managerial duties, the station would not function at all because no one else would perform these essential tasks.

The second factor examines “the frequency with which the employee exercises discretionary powers” or “the prevalence or regularity of the plaintiff’s discretionary decisions.” The court noted that an “employee’s exercise of discretion over matters of importance strengthens the employer’s showing under the second factor.” Even though her district manager was available by phone and frequently visited, he was not present enough to remove the plaintiff’s regular discretion in managing the station.

“The third factor considers the employee’s ‘relative freedom from supervision.’ [The plaintiff] was the most senior employee at her station; no other on-site employee was her equal. Thus, on a day-today basis, she generally operated without a supervisor looking over her shoulder, monitoring her every move.” “A ‘local store manager’s job is [no] less managerial for FLSA purposes simply because . . . she has an active [district manager].’” Only where the district manager was present virtually every day for several hours have courts found this factor to weigh in the employee’s favor.

The court compared the plaintiff’s salary to her subordinate employee’s wage rate in the fourth factor. Even considering the number of hours she worked, her regular salary equated to approximately 30% more than her subordinate employees without factoring in her eligibility for a monthly bonus or how much overtime the subordinates earned. Even if the subordinate’s overtime were considered, the plaintiff earned more than $7,000 more than the next highest paid employee at the store in the prior seven months. The court found that pay difference to be significant.

Finally, the court dismissed the plaintiff's claim for overtime wages under Ohio law because Ohio's overtime wage statute explicitly incorporates the FLSA exemptions. Ohio Rev. Code § 4111.03(A) (“An employer shall pay an employee for overtime at a wage rate of one and one-half times the employee’s wage rate for hours worked in excess of forty hours in one workweek, in the manner and methods provided in and subject to the exemptions of . . . the ‘Fair Labor Standards Act of 1938’”).

Insomniacs may read the full opinion at http://caselaw.lp.findlaw.com/data2/circs/6th/063768p.pdf

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with an attorney.