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March 02, 2009
Misclassification of Store Managers Proves Costly for Retail Chain
A nationwide retail chain classified all its store managers as qualifying for the executive exemption from the Fair Labor Standards Act. A few of them sued for violation of the Act, arguing that they had few if any managerial duties and deserved overtime. In all, more than 1,400 such managers joined in what became a class-action lawsuit.

What happened. Family Dollar Stores’ nationwide handbook designated store managers as carrying the executive exemption, while assistant managers were hourly employees who earned overtime. Store managers in Alabama began the lawsuit well over 4 years ago.

Charging that they routinely worked 60 or 70 hours each week and spent 80 percent to 90 percent of their time cleaning stores and restocking shelves, they sought nonexempt status and overtime. The rest of the class, extending nationwide, was certified, and the case went to a jury in March 2006.

Jurors learned that store managers had no authority to hire, fire, promote, or discipline other store employees. The jury awarded the class—1,424 people who were store managers between 1999 and 2005—$19.1 million in back pay.

The court then found that Family Dollars’ violation had been “willful,” not a mistake made in good faith. That made liquidated damages available, and the total ante went up to $33 million. In April 2007, the court raised the amount again, up to $35.6 million. Family Dollar appealed to the 11th Circuit, which covers Alabama, Florida, and Georgia.

What the court said. High-level managers argued before appellate judges that the job of a store manager varied so widely that a “fact-intensive” inquiry into the duties of each was necessary. Since each job was different, they said, the plaintiffs should not have been certified as a class. Further, they argued, the class was so big that the impact on Family Dollar was essentially unfair.

Judges found first that store managers and assistant managers earned just about the same pay—except that the assistants also got overtime. And, not only did the company handbook say that all store managers were exempt but it also provided a job description with no hint of managerial duties.

Finally, executives testified they had never examined any store manager’s job and had no idea why the handbook decreed them exempt. The willful violation stood, and the plaintiffs will (eventually) get their award. Morgan et al. v. Family Dollar Stores, U.S. Court of Appeals for the 11th Circuit, No. 07-12398, (2008).

Point to remember: FLSA exemption rules changed in August 2004, but both new and old rules said an employee with an executive exemption had to spend at least 50 percent of his or her time on managerial duties.

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