Professional Service Agreement

Recent Case Provides Food for Thought on Primary Duty of Overtime-Exempt Managers

October 16, 2018

A federal court in Missouri recently granted conditional class certification under the Fair Labor Standards Act (FLSA) to Steak ‘n Shake restaurant managers challenging their classification as overtime-exempt under the FLSA’s executive and administrative exemptions. Conditional certification is the first step toward maintaining an FLSA collective action. The court found evidence to support conditional certification, including evidence that the managers’ duties were “largely the same as the non-exempt employees they supervised.” The decision provides an opportunity for reflection on a wage and hour issue that frequently confronts employers in the food, convenience store, and other retail service industries – particularly, those with multiple locations staffed by a few managers and a small staff of non-managerial workers. In these settings, managers often perform concurrent managerial and non-managerial duties, because the realities of the workplace, if not the employer’s explicit policies, require the managers to spend a substantial portion of their work hours assisting in the operational tasks of their subordinates. These may include waiting on customers, cleaning, cooking, and stocking shelves. One requirement of both the executive and administrative exemptions focuses on the employee’s “primary duty.” An exempt executive’s “primary duty” must be “management” of an enterprise or one of its departments or subdivision. Similarly, the “primary duty” of an exempt administrative employee must be “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.” SESCO has a long history of ensuring that employers are compliant with federal and state wage and hour requirements. If employers have any questions or concerns about their pay practices, we recommend they contact us to ensure compliance.

The Wage and Hour regulations note that managers with concurrent managerial and non-managerial duties are not necessarily disqualified from the executive exemption. 29 C.F.R. §§ 541.106(a). The regulations do, however, require a case-by-case determination as to whether the manager’s “primary duty” is “management.” This requires analysis of four (4) factors: (a) the relative importance of the exempt duties as compared with other types of duties; (b) the time spent performing exempt work; (c) the employee’s relative freedom from direct supervision; and (d) the relationship between the employee’s salary and the wages paid to other employees for the nonexempt work performed by the employee. 29 C.F.R. § 541.700(a). While time spent on exempt work is a “useful guide,” employees who spend less than 50% of their time performing exempt duties can still meet the primary duty requirement if the other factors support that conclusion. 29 C.F.R. § 541.700(b).

Applying these factors, one court found Burger King assistant managers to be exempt, even though they spent at least half of their time performing the same work as the hourly employees. Donovan v. Burger King Corp., 672 F.2d 221 (1st Cir. 1982) (“Burger King I”); Donovan v. Burger King Corp., 675 F.2d 516 (1st Cir. 1982) (“Burger King II”). In Burger King I, the court explained “one can still be ‘managing’ if one is in charge, even while physically doing something else.” 672 F. 2d at 226. In Burger King II, the court found assistant managers’ duties were “critical to the success of the restaurant” and could be “carried out simultaneously with the performance of non-exempt work.” 675 F.2d at 521.

By contrast, the court in Marzuk v. Cadete Enters., 807 F.3d 431 (1st Cir. 2015) denied an employer’s motion for summary judgment where evidence showed a Dunkin’ Donuts manager spent at least 90% of his time on the floor performing the same tasks as the non-exempt hourly employees, was closely supervised by his own superior, and, when considering the 66 hours per week that he worked, earned an hourly rate just slightly higher than his subordinates. The court further noted that the extent of the manager’s non-management duties effectively precluded him from performing his management functions during his regular six-day work week. Instead, the manager often worked on his one day off to complete his management duties.

While recognizing that managers typically work over 40 hours per week and that there is no per se limit on the time an exempt manager can spend on non-exempt work, the Marzuk court found the Dunkin’ Donuts manager was, effectively, “doing two jobs, for one salary: a full-time nonexempt position and a part-time exempt one.” As a result, the court found a reasonable jury could conclude that the “‘part-time’ managerial position [was not] his primary duty for the company.”

The reality of many stand-alone work locations often requires managers to engage in concurrent performance of non-managerial duties. Companies that employ these managers and treat them as exempt should carefully evaluate the above-discussed factors to ensure that “concurrent” non-managerial duties do not become so all-consuming that their “managers” no longer have management as “primary duty.” If managers may be spending close to half of their working time performing non-managerial duties, employers should seek legal advice to determine if the managers still meet the “primary duty” requirements of the executive or administrative exemptions. Finally, as changed circumstances at worksites can alter the nature and volume of a manager’s non-management duties, employers should conduct periodic audits of their managers’ duties, hours worked, and pay to be certain that their managers satisfy the “primary duty” test and other requirements to meet the executive or administrative exemptions.