Court Watch Fall 2001 Employers in many industries are alerted to the implications made in the following case. A federal district court in the Middle District of Tennessee (Sixth Circuit) recently granted summary judgment and awarded 125 current and former managers of Waffle House restaurants over $2.8 million dollars in overtime pay pursuant to the Fair Labor Standards Act ("FLSA"). In Cowan v. Treetop Enterprises, Inc., the Court found that due to the large amount of time spent by the "unit managers" performing non-managerial tasks, the employees were not "exempt" from the overtime provisions of the FLSA. This ruling is particularly troubling because, in 1983, the prior franchiser defeated a challenge brought by the Secretary of Labor concerning the "unit managers." The federal district court for the Northern District of Georgia held "unit managers" to be exempt from the overtime requirements of the FLSA. Donovan v. Waffle House, Inc. This time, the employer could not muster sufficient evidence of the unit manager’s "primary duty" in light of its own handbook, lack of records, and testimony of the class members. The Unit Managers Plaintiffs filed a class action suit against Treetop Enterprises, Inc., the owner and operator of 103 Waffle House restaurants in Tennessee, Alabama, Mississippi and Kentucky, alleging that Treetop had incorrectly classified its "unit managers" as exempt executives under the FLSA. After issuance of a court-approved notice, 123 current and former employees "opted into" the class action. Under its organizational structure, Treetop assigns a unit manager to each Waffle House restaurant. Each unit manager is supported by and reports to a district relief manager who substitutes for the unit manager on the unit manager’s days off and usually has responsibility for three restaurants. District managers report to division managers who are responsible for nine restaurants. Treetop's "Production Training Unit" manual states that the primary objective for the Unit Manager "is to become a proficient grill operator or cook for that shift." A second objective "is to gain exposure to the daily management duties and responsibilities." The unit managers engage in some recruiting and interviewing of applicants, hiring, training, disciplining, firing and managing of hourly employees and have authority to recommend advancement or promotion. However, in practice, the unit managers spend little time on such matters and other employees often perform the unit managers' managerial duties. On the first shift, the busiest shift, the unit manager is often at the grill cooking with his or her back to the restaurant. This made it hard to prove that the unit manager was "supervising" staff throughout the restaurant. Further, the district managers perform many of the duties formally assigned to the unit managers. District managers approve staffing schedules, schedule meetings with hourly employees, sometimes without a unit manger, and investigate shift thefts. A former manager at all three levels stated in his deposition that even "simple decisions" concerning the restaurants are made by the district manager, not the unit manager. Because Treetop considers the unit manager position to be "exempt," Treetop does not maintain time records of management tasks or total hours worked. The Test For Bona Fide Executive Employees To qualify as a "bona fide executive" within the meaning of §213(a)(1) of the FLSA, and thereby be exempt from FLSA overtime requirements, generally either "the short test" or "the long test" must be met. The long test applies to an employee whose salary basis is "at a rate of not less than $155 nor more than $249 per week." The short test, applied to employees whose salary exceeds $250 per week, requires the court to consider only two factors: (i) whether the employee's primary duties are management of the enterprise or a subdivision thereof, and (ii) whether the employee regularly and customarily directs the work of two or more other employees. In Treetop's case, because it had unit managers earning salaries in both ranges, the Court applied both the long and short tests. In applying the long test, the Court found that the key issue was to determine the "primary duty" of the unit managers. In determining this, the Court focused on Treetop's corporate documents, particularly the language of the Production Training Manual which stated that "the primary objective of the [Unit Manager] is to become a proficient grill operator. A second objective is to gain exposure to the daily management duties and responsibilities." The Court also noted the physical position of the unit managers, i.e., having his/her back to the other employees. The Court reasoned that the unit managers primary focus, thus, was food preparation and that significant supervision was "highly unlikely." Although not dispositive, the unit managers spent 83 to 93 percent of their time on non-management functions. Based on these factors, the court found Treetop failed to prove that the unit managers customarily directed the work of two or more employees and legally exercised discretionary powers. Even simple decisions were made in consultation with the district managers. Further, Treetop disregarded the "sole charge" defense, finding that a unit manager was not in charge of all of the on-site activities because of the need for upper management approval of many decisions. Factors to Consider When Classifying Employees as Bona Fide "Executives" It is apparent that employers should anticipate what types of evidence they could generate to address these key factors. (1) Job descriptions or other definitions of job duties in corporate documents: Employers seeking to classify employees as bona fide "executive" employees should make sure that these employees have managerial functions listed as their "primary duty"; (2) Proving the percentage of time actually spent by the employee performing managerial duties: If the percentage of time actually spent by the employee performing managerial duties is low, the employer may want to reconsider whether the employee is properly classified as a bona fide "executive;" (3) Hiring and firing authority of the employee: If the employee does not have the authority to hire and/or fire, or the employee's recommendations to hire and/or fire are not taken into consideration when making these decisions, he is probably not a bona fide "executive;" and (4) Whether the employee has the authority to make even simple management decisions independently: If the employee does not, this casts serious doubt on the employee qualifying as a bona fide "executive." Employers in other industries who are treating as exempt managers of "established business units" or who are relying on the "sole charge" defense need to review those decisions carefully. As supervisor responsibilities change and corporate documents are revised, the prudent employer will re-visit FLSA exemptions which many thought had been comfortably established. Even small changes in job duties, reporting authority, or "goals" listed in evaluation forms or job descriptions can create significant FLSA exposure.