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Managers, Donuts and “Bonafide Executives”

Can a “manager” of a place like Dunkin’ Donuts, who is a salaried employee, sue when they work beyond 40 hours per week, but don’t get paid any overtime?

Well, that depends, but under certain circumstances, the answer is yes. The “Dunkin’ Donuts” case illustrates this, which was just published on December 9, 2015. It’s a case out of Massachusetts, but the federal law that was applied also works in Utah.

At issue in that case was whether the managers of a Dunkin Donuts were in fact just busting their rears making, and serving up donuts and cleaning up after customers just like the “hourly-paid” the staff was, or whether they were supervising the work of the other employees. Both stores were among multiple Dunkin’ Donuts franchises that were owned and operated by three related corporate entities—Cadete Enterprises, Inc., T.J. Donuts, Inc., and Samoset St. Donuts, Inc.—whose common president is John Cadete.

In other words, the court was presented with this question: did the managers “fall within the FLSA’s overtime-pay exclusion for employees serving in a “bona fide executive” capacity, as defined by 29 U.S.C. § 213(a)(1).” If so, the employees were screwed (owed nothing). But, if not, the owners of the stores would be screwed because they would face the possibility of paying the managers double for the unpaid wages (liquidated damages), plus their attorney fees.

The trial court found in favor of the owners, and so the judge threw the case out, but the employees appealed, and the United States Court of Appeals reversed, and “remanded” the case back to the trial court for further proceedings. What do you suppose the legal fees were just to get to that point? Our guess, around $30,000 (at least).

The appellate court said the record contained evidence that the plaintiffs’ managerial (supervisory) and non-managerial duties (grunt work) were both essential for their employers’ businesses to run well, thus, at times the managers looked like managers, but other times, they looked like the grunt workers (and we use the term “grunt worker” with affection). It’s the so-called grunt workers that make a company go. Without them, customers get nothing, and companies make no money.

In other words, at times a manager may do things like recordkeeping, depositing cash, calibrating equipment, fiddling with computers and date entry, and setting employee schedules. That is not front-line grunt work, so it’s managerial. Also, in their managerial role, they may also interview potential hires, train the new staff, and oversee “the day-to-day operation of the store.” And that is what we have all come to expect from a manager, right? And naturally, if the store is in a pinch, we all expect a manager to roll of his or her sleeves, and show the staff how real work gets done. But that should be the exception not the rule.

When hired, typically the “formal employment documents,” will show a manager’s duties as almost exclusively managerial. In the Dunkin case, the “Position Profile” listed more than two dozen managerial tasks that were expected of a restaurant manager, “only one of which directly anticipated a manager’s assistance with nonexempt tasks.”

A non-exempt task is usually one that gives the public what the public knows the business for. So, if you work at McDonald’s and cook and/or give people hamburgers and fries, you are doing what McDonald’s is known for – at Dunkin’ Donuts its making and serving donuts and coffee. But if you are doing McDonald’s books, that is not what they are known for. Manager’s make sure the “known for” work gets done, but are not expected to be the person doing that type of work.

Here is where companies run into trouble: they will hire a “manager,” but have the “bulk of manager’s workweek consist of performing nonexempt work, including serving customers and cleaning.” Examples of this: regularly filling in for hourly employees, who fail to show up for whatever reason. For example, some shifts may be tough to find staff for, so the employer may just have the manager do “hourly” staff work doing that time. This makes it tough on the manager because it may force them to come in on Sundays, or even holidays “to complete the paperwork required” of them or other tasks.

If a jury could find that a plaintiff’s exempt and nonexempt duties were equally important to the successful operation of their restaurants, then it looks like he is just as much a front-line worker as he is a manager.

One court determined there was a lot of evidence that the non-managerial tasks of the “managers” not only consumed 90% of the store manager’s time, but those non-managerial duties were of equal or greater importance to a store’s functioning and success” – in other words, when the manager is flipping the burgers and fries, and handing them to the customers, he looks like a guy that should be paid hourly. In other words, jurors are “free to weigh the relative importance of the store managers’ managerial and non-managerial duties.”

Managerial duties may include things like making sure the store’s equipment is properly functioning, keeping track of the the cash, entering data into the computer, and driving to the bank to deposit the money – in other words, things that every business has to do. Other managerial duties are things like preparing employee work schedules,hiring and firing, and placing orders for the store’s supplies. But if you make and deliver a Big Mac, it looks like you’re a front-line, hourly guy.

But here is the huge red flag: if those “administrative tasks” add up to a relatively small portion of the manager’s workweek, it looks like he should be an hourly employee. If an employee claims he is “on the floor” working alongside his fellow staff workers “for 90 percent of his work” the employer will have a tough time winning in court.

A manager should be a bit like a teacher (or the principal) in a classroom.

Now, a manager may work alongside the hourly employees “on the floor,” but he cannot essentially become on of them. He must be supervising them. For example, if a manager unloads freight or sweeps the floors, he better be regularly coaching other employees and correcting their mistakes while he is doing that.

More red flags: doing physical work while tending to the landscaping.

Often a manager may work 60-70 hours per week or more. As a court said, “plaintiff acted as “captain” of the store even when he was off duty, fielding phone calls from employees and going into work if necessary to resolve problems.” The court in that case said that “allocating percentages of plaintiff’s work hours to exempt and nonexempt duties is thus not a straightforward calculation.” In other words, an employee can get confused very quickly and often.

Typically, managers must have some autonomy (discretion) over the day-to-day operation of their stores, and if their pay is docked for “missing work” that usually means they are not a true salaried person. So, if they don’t do things like set the store budgets and determine things like staffing levels it could look like they are just robots below the real managers. If managers are “expected to follow uniform procedures” that may also work against the employer, because again, it looks like the manager does not have discretion, just like a cook at McDonald’s does not have discretion when it comes to making a cheeseburger.

So, whether a store manager has “authority to problem solve” is key, and if he gets paid for days he does not work, that also helps the company’s case (otherwise, his title of “salaried” manager could be deemed a sham). The broader his discretion, the more likely he is a true manager. Remember: the more the manager is managed, the less he looks like a manager.

In the Dunkin case, the court noted that the “managers appear to have little flexibility in resolving customer complaints. In response to “my coffee was cold yesterday,” for example, a manager may “buy” the customer a new cup of coffee, but the manager may not issue a gift card without [the superior’s] approval. Sounds tiny, but the court sees this as a big deal.

Managers should be able “to approve any terminations.” If a manager’s superior “has to know everything that’s going on,” it bodes badly for the company. The court noted that the managers also needed permission to hire additional crew members when they were short staffed, and they also needed permission to hire an assistant manager.

The Dunkin case favored the employees’ position because the court saw that the scenario was similar to the circumstances in the Burger King case, where the assistant managers’ equivalent tasks were “governed by highly detailed, step-by-step instructions contained in Burger King’s ‘Manual of Operating Data,’ and admit of little or no variation.” In that case it was concluded that “[s]tore managers had little freedom from direct supervision,” where, among other things, district managers “were responsible for enforcing the detailed store operating policies;” closely reviewed each store’s inventory, orders, and net sales figures; monitored weekly payroll; controlled employee pay rates and raises; and “routinely sent to-do lists and emails with instructions to store managers”.

The Court also looked at the relationship between plaintiffs’ salaries and the wages paid to the hourly employees for similar nonexempt work. The court said that when “salary is low and a substantial amount of time is spent on nonexempt work, the inference that the employee is not an executive is quite strong.” So, a company should pay its managers much better than their hourly people.

And there should be a significant difference in the true hourly rate at which managers and “hourly” workers are paid.

The court said, “we at a minimum must presume that plaintiffs regularly worked sixty-six hours per week.” It said that based on the managers’ salaries, that would be an hourly rate of $12.50 for one of them and roughly $9 for the other guy. Get the point? Yeah, the manager might make more per week, but if the hourly rate is about the same as the normal staff, they are really getting paid about the same for work done. When the court figured in tips that the staff got, things looked even more bleak for the company. In their brief, appellants proposed “a $2–per–hour tip estimate,” which the court conclude was supported.

But, the kicker was when the court said, “a fair comparison of wages also needs to take into account that, if managers were compensated like hourly employees, hours worked over forty would be paid at the overtime rate of time-and-a-half.” So, the court then took a sixty-six-hour workweek, compensated at $8 per hour for the first forty hours ($320) and $12 per hour for the remaining twenty-six hours ($312), supplemented by $2–per–hour in tips ($132), a non-managerial crew member would earn $764—significantly more than one manager and insignificantly less than the other!

So, it looked more and more like the managers’ primary duties were not managerial. So, the court said the case should not be thrown out. The Court of Appeals said that a jury could conclude that defendants failed to meet their burden of showing that the managers fell within the “bona fide executive” exception to the FLSA’s overtime pay requirement.

Marzuq v. Cadete Enterprises, Inc., No. 14-1744, 2015 WL 8284493, at 7-13 (1st Cir. Dec. 9, 2015)

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