Appeals Court Affirms $35 Million Verdict in Overtime Case

12.23.08

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The U.S. Court of Appeals for the Eleventh Circuit (Alabama, Florida, Georgia) recently affirmed a $35 million award for store managers for Family Dollar Stores, agreeing with a lower court that the managers were non-exempt and therefore were entitled to overtime and liquidated damages under the Fair Labor Standards Act.

Although assistant and other lower-level managers in retail establishments are sometimes found to be non-exempt, it is unusual for a court to find that the highest level store managers are. The top manager in a retail establishment usually qualifies for the executive exemption under the FLSA. However, in this case, the jury and the appeals court both found that the store managers at Family Dollar did not qualify for the exemption in large part because they spent approximately 80 to 90 percent of their time performing manual tasks such as stocking shelves, running cash registers, unloading trucks, and cleaning the stores.

The appeals court, in Morgan v. Family Dollar Stores, noted that the store managers were very closely supervised by district managers. Not only did the store managers have no authority to hire or fire store personnel, but the court also found that there was no evidence that Family Dollar required that the store managers’ recommendations as to hiring and firing be given any particular weight. Moreover, the store managers were not paid significantly more than their non-exempt co-workers, indicating that the store managers were not being paid a premium to exercise managerial responsibility.

In the lower court proceedings, the case was certified as a collective action, opt-in notices were issued, and more than 1,400 store managers opted in. Family Dollar moved to decertify the collective action, but its motion was denied. The first jury to hear the case deadlocked, but the second jury threw the book at Family Dollar: it found that the store managers were non-exempt, that they routinely worked 60-70 hours a week, and that Family Dollar had willfully violated the FLSA (meaning that the three-year “willful” statute of limitations applied). The managers were awarded almost $18 million in back pay with the same amount awarded again as liquidated damages. It appears that the second jury was impressed by the amount of time spent by the store managers in performing manual tasks, and by the extensive level of detail and specific instruction contained in the company’s operations manuals that governed the running of the retail stores.

This case is yet another example of the critical need for employers to carefully review and consider their exempt classifications. The filing of FLSA collective actions continues unabated, and – as this employer learned the hard way – such lawsuits can be very costly. Constangy’s Wage-Hour Practice Group is available to assist.

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