Egg on their faces: Mistakes in paying cooks cost $2.8 million — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Egg on their faces: Mistakes in paying cooks cost $2.8 million

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Employers who misclassify workers as exempt continue to be hit with big-dollar court awards.

In a recent decision, a federal court ordered owners of more than 100 Waffle House restaurants to pay $2.8 million in back overtime pay to current and former managers. (Cowan v. Treetop Enterprises Inc., No. 3:98-0623, M.D. Tenn., 2001) The court ruled that these so-called managers had a primary duty of grill operator or cook, so they didn't qualify as exempt executive employees under the Fair Labor Standards Act.

In addition, Waffle House didn't keep time records for the managers, and it didn't have any analysis of the time the managers spent on particular tasks. Based on testimony from the managers, the court concluded that they worked an average of 89 hours a week.

The court based its overtime calculations on the managers' being salaried nonexempt employees who received $570 for 53 hours a week. They're entitled to time and a half for any hours over that.

The court rejected the employers' argument that the managers' pay should be based on a "fluctuating workweek" system, in which the salary is paid for whatever hours are worked, and they receive half time for anything over 40 hours. That could have cut the overtime award to less than $700,000.

Advice: If you want the fluctuating workweek method to apply, have a clear, mutual understanding with employees that you're using the method. Occasionally re-evaluate whether you've properly classified positions, and consider keeping records of hours worked so courts aren't guessing about any penalties owed.

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