Who’s in Charge? Burgers, Donuts, & the Bona Fide Executive Exemption to the FLSA’s Overtime Pay Requirements

The First Circuit recently held that a material factual dispute existed as to whether store managers employed by Dunkin’ Donuts qualified as “bona fide executives” under the Fair Labor Standards Act (“FLSA”), and as such, were exempt from the FLSA’s overtime requirements. Marzuq v. Cadete Enters., 807 F.3d 431 (1st Cir. 2015) (hereinafter Dunkin’ Donuts). At first glance, the First Circuit’s decision seems irreconcilable with an earlier First Circuit case – Donovan v. Burger King Corp. – in which the First Circuit held that Burger King’s assistant managers qualified as “bona fide executives” under the FLSA. 672 F.2d 221 (1st Cir. 1982). A close look at the two decisions, however, shows why managers at Burger King and Dunkin’ Donuts are given different treatment under the FLSA’s executive exemption.

Statutory & Regulatory Framework

Under the FLSA, an employer must compensate an employee at “one and one-half times [the employee’s] regular rate” of pay, for any hours the employee works in excess of forty hours per week. 29 U.S.C. § 207(a)(1) (2015). However, the FLSA has carved out several exemptions to its overtime pay requirements. Under the “executive exemption,” an employer does not have to compensate an employee at the FLSA’s increased overtime-pay-rate if the employee qualifies as a “bona fide executive.” Id. § 213. An employee qualifies as a bona fide executive if: (1) her salary is at least $455 per week; (2) her “primary duty” is “management”; (3) she “customarily and regularly” directs the work of two or more other employees; and (4) she has the authority to hire and fire other employees, or has “particular weight” in those decisions. 29 C.F.R. § 541.100(a) (2015).

Prong two of the bona fide executive test is known as the “primary duty test,” and was the key prong at issue in both the Burger King and Dunkin’ Donuts cases. The Secretary of Labor’s FLSA regulations propose four factors for courts and employers to consider to determine whether an employee’s “primary duty” is management: (1) the relative importance of the employee’s managerial duties as compared with other types of duties, (2) the amount of time spent performing managerial work, (3) the employee’s relative freedom from direct supervision, and (4) the relationship between the employee’s salary and the wages paid to other employees for the kind of non-managerial work performed by the employee. 29 C.F.R. § 541.700.

The Burger King Case

In Burger King, the key issue was whether Burger King’s assistant managers satisfied the primary duty test and therefore qualified as “bona fide executives.” Each Burger King restaurant had one manager, and two assistant managers, and typically only one of those three employees worked on each shift. The assistant managers were responsible for managerial duties such as recordkeeping, training employees, scheduling employees, and overseeing work quality, but nonetheless spent approximately 40% of their time performing non-managerial tasks such as taking orders and making food. Burger King issued a “Manual of Operating Data” to every assistant manager, which governed every detail of the assistant managers’ job performance, leaving them little discretion to make significant decisions affecting the restaurant.

The First Circuit held that the assistant managers’ primary duty was management. The First Circuit explained that, when a manager was not on duty, the assistant managers were “de facto in charge of the store.” Furthermore, even though the assistant managers spent approximately 40% of their time performing non-managerial tasks such as taking orders and preparing food, they were nonetheless responsible for managing the store even “while performing [non-managerial] work.” The First Circuit also explained that, even though the Manual of Operating Data spelled out every detail of how the assistant managers must perform their work, the assistant managers were still ultimately responsible for the supervision, training, and management of the other employees. Therefore, because they qualified as bona fide executives, the assistant managers were exempt from the FLSA’s overtime requirements.

The Dunkin’ Donuts Case

As in the Burger King case, the key issue in Dunkin’ Donuts was whether Dunkin’ Donuts’ store managers satisfied the primary duty test and therefore qualified as bona fide executives. Similar to the Burger King assistant managers, the Dunkin’ Donuts store managers performed a mix of managerial and non-managerial duties, and were responsible for everything from training and supervising employees to sweeping the floors. The Dunkin’ Donuts stores, however, were chronically understaffed, which forced the managers to spend up to 90% of their day serving customers, making food, sweeping floors, and performing other non-managerial duties. Despite their long hours, the store managers earned little more than an entry-level employee. Furthermore, the store managers were closely supervised through Dunkin’ Donuts’ upper-level management hierarchy, and were required to seek permission for tasks as simple as putting in a maintenance request.

The district court – citing Burger King – held that the store managers were bona fide executives, and therefore granted Dunkin’ Donuts summary judgment motion. The First Circuit reversed, holding that a genuine issue of material fact existed as to whether Dunkin’ Donuts store managers satisfied the primary duty test. The First Circuit emphasized that, although the store managers technically were “in charge” of their stores, they spent 90% of their time performing non-managerial tasks, which suggested that they rarely actually “managed” the store. Furthermore, the store managers held extremely limited decision-making authority, especially over matters involving money. Summarizing its analysis, the court explained that “managers who ‘spend more than 50 percent of the time performing nonexempt work such as running the cash register’ would generally not fulfill the primary duty requirement if they are ‘closely supervised and earn little more than [entry-level] employees.’” Accordingly, the First Circuit concluded that there was a material dispute of fact as to whether the “managers” were actually in charge of the store, and remanded the case for further proceedings in the district court.

Takeaways

When read together, Burger King and Dunkin’ Donuts provide useful guidance on the primary duty test for purposes of analyzing the application of the FLSA’s overtime requirements in the First Circuit. While each case requires a close look at the facts, if an employee does not act like a manager most of the time, is closely supervised, and earns little more than non-managerial employees, she is likely not a manager under the FLSA, regardless of her title, and is not exempt from overtime pay.

JOHANNA MATLOFF

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ADAM M. SANTEUSANIO

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2017-01-13T17:12:22+00:00 February 3rd, 2016|Categories: Adam M. Santeusanio, FLSA, Johanna Matloff, Laws & Regulations, Wage & Hour|0 Comments

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