On the crest of the FLSA collective action wave that has swept the nation in recent years is the never-ending parade of exemption misclassification cases targeting Manager/Assistant Manager positions. In yet another iteration of this phenomenon, Payless Shoesource Inc. has agreed to settle such a class action for just under $3,000,000. The case is entitled Shallin et al v. Payless Shoesource, Inc. et al and was filed in federal court in Connecticut.
One-third of the settlement (a cool million) goes to the lawyers and the balance will be divided up among the almost 2200 class members who worked at Payless stores from March 2011 to the present. The theory of the case was that the Company misclassified the Managers as exempt under the Fair Labor Standards Act. The case began in March 2014 when former store managers filed the suit. This is so often the pattern—a fired or separated employee starts an action and all of a sudden, in typical FLSA collective action style, it comes out that many (as herein, more than 2000) other employees are “similarly situated.”
The Complaint ran according to the usual format. There were allegations of “purposeful” conduct, i.e. willful, designed to secure the third year on the statute of limitations. There were allegations that the Company knew that the workers spent more than 50% of their time working the cash register, dealing with customers, cleaning the store and answering phones, all clearly non-exempt, rank-and-file duties. As is also typical, the Complaint alleged that the Company saved inordinate amounts of money through this practice. Indeed, the Complaint asserted that the “defendants’ unlawful pay practice saves them hundreds of millions of dollars.” The Company hotly contested these allegations but chose to settle to save future litigation costs, without admitting any liability or wrongdoing.
The Company has endured similar suits previously. Managerial employees in Mississippi some years ago filed suit on a misclassification theory, alleging that they were compelled to work 60-90 hours per week without overtime and the amount of non-exempt work they performed undermined their exempt status. That case went away after the parties reached a confidential settlement.
Given all this class action litigation on Manager exempt status, I am almost at a point where I want to advise clients that all Managers (and, certainly, at a minimum, Assistant Managers) should be classified as non-exempt, their hourly rates adjusted accordingly, to reflect their salaries and they get paid overtime when they work more than forty hours. With that said, if an employer wants to preserve and be able to defend the exempt status of Managers, then these workers must be endowed (and not only in a Position Description) with managerial functions (e.g. hiring, firing) and paper trails must be laid down to reflect the actual exercise of those powers.
If that cannot be done effectively, then maybe the better approach is to classify them all as non-exempt and totally eliminate the risk of a successful FLSA suit. I understand that, from an operations perspective, as well as a “perception” context, this is not an ideal course of action but on this matter, as in so many legal/business issues, there must be a balancing of the good and bad and spending hundreds of thousands of dollars defending and/or settling a FLSA collective action on this issue is, indeed, bad.