Don’t make one of the most common mistakes HR managers do when classifying employees as exempt—by relying on the so-called “executive exemption” for employees you call managers and supervisors.
Unless you can back up your claims with solid proof that those employees actually do managerial work, you could find your organization on the hook for an expensive jury award.
That’s what happened to national retailer Family Dollar. Now it owes $35 million in unpaid overtime wages and penalties for ignoring its Fair Labor Standards Act ( ) obligations.
Recent case: Janice Morgan was one of 1,424 Family Dollar store managers who sued for unpaid overtime, claiming they had been wrongly classified as exempt executive employees. She used the company’s payroll records to show that store managers routinely worked 60 to 70 hours per week while receiving only a set salary.
The store managers pointed to their job descriptions, which listed among their essential functions the requirement that managers do the same work as stock clerks and cashiers, plus unload merchandise from trucks. The managers told the court they spend about 90% of their time doing exactly the same thing as the employees they supervise.
The general rule is that employees must spend 50% or more of their time on to earn the exemption.
Unfortunately for Family Dollar, upper management appeared clueless as to what its managers actually did on a day-to-day basis or the amount of time store managers actually spend on managerial duties. In fact, the company simply testified that it had a companywide policy that listed all store managers as exempt executives, but had no idea who originally formulated that policy or on what it was based.
That was enough for the 11th Circuit Court of Appeals to uphold an earlier jury award, including the doubled damages and back pay going back three years instead of two because Family Dollar’s violation was “willful.” (Morgan, et al., v. Family Dollar, No. 07-12398, 11th Cir., 2008)
Final note: Now's a good time to review how you categorize employees as either exempt or hourly.
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