New overtime regs fuel labor dispute

Oct. 9, 2004

Sweeping changes to the Fair Labor Standards Act that went into effect on Aug. 23 have generated a lot of concern among pizza operators — plus no small amount of debate on Capitol Hill.

The revisions mark the first major overhaul of the FSLA since it was enacted in 1949. The U.S. Department of Labor believed changes were necessary to modernize pay minimums for salaried personnel. Standards determining how employees are classified exempt and non-exempt from overtime benefits also needed clarifying.

Depending on whom you talk to and what industry you're discussing, those changes could pinch profits. The revisions certainly will be felt by some pizza operators.

Under the new regulations, salaried managers must make at least $455 a week ($23,660 a year), up from $155 weekly ($8,060 a year) to be exempt from overtime pay.

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Such employees' duties also must be primarily managerial, meaning they must supervise others and be responsible for a subdivision (back of the house, front of the house, etc.) of the overall enterprise. In short, companies cannot arbitrarily call employees managers or assistant managers in order to avoid paying them overtime.

Though significant, it doesn't appear the changes are earth-shattering, said several labor experts interviewed by PizzaMarketplace.

"To the extent that this has been portrayed as a big sea change is inaccurate, in my opinion," said Douglas Duerr, a labor-relations attorney with the Atlanta law firm of Elarbee Thompson, Sapp & Wilson. "In fact, I definitely think it's a positive change for restaurants."

Labor history

When the FSLA was enacted more than 50 years ago, legislators were working to defend the working class by controlling child labor, establishing a living wage, standardizing the work week at 40 hours and forcing employers to pay time-and-a-half for hours worked beyond that.

"This was the very first law that infringed upon the notion that employers and employees should be able to agree on whatever terms of employment they wanted to," said Duerr. "Prior to that time, there was absolute freedom of contract. But the Fair Labor Standards Act said, 'No, there are limits to that.' "

The legislation was drawn up on the heels of the Great Depression, when many worked seven days a week in deplorable conditions and for meager pay. Workers who didn't accept such terms typically had little legal recourse.

Fast-forward to the 1990s, when legislators set out to update the out-of-date regulations. Even then, the $155-per-week salary minimum was viewed as too low, and the soaring number of court cases centered on overtime violations made certain that the guidelines for exemptions needed clarifying.

With the changes, the Department of Labor has limited the number of ways an employee can be classified as exempt by applying some basic tests regarding salary minimums and managerial duties.

For example, any managerial employee must be paid at least $23,660 annually, plus he or she must be paid on a salaried basis.

Secondly, the work done by salaried persons must be managerial (officially called an "executive exemption") in scope. Managers have to supervise two or more full-time employees (or the equivalent), be able to hire or fire employees and have input regarding their charges' change of status. In other words, the manager's (as well as an assistant manager's) opinion should be sought regularly when considering issues such as others' pay raises or promotions.

"This is an important change because there are a number of people out there classified as managers, who really don't have that authority," Duerr said.

Operators should not confuse a manager's position with that of a shift leader or floor director, warned Duerr. Such staffers are in decision-making and leadership roles, but they don't hire or fire employees and they're not commonly asked about status changes for other employees. In the language of the FSLA, such people are "working foremen" who direct the work while doing a share of it themselves.

In the kitchen, the same applies to expediters; they direct people, but their authority is limited to the execution of some basic tasks.

Whether an employee is truly a manager also has to meet a "duties test" that determines what percentage of one's responsibilities truly are managerial. Prior to Aug. 23, at least 80 percent of a manager's duties had to center on the direction of other employees or the dispensation of executive duties, such as computing food cost. Now the minimum is lowered to 50 percent, allowing some wiggle room for operators whose managers may bus tables or work the line during the rush, etc.

The very issue of managers performing more non-exempt than exempt duties is at the core of a California lawsuit against the world's largest pizza chain. In Coldiron v. Pizza Hut, former restaurant general manager Ann Coldiron claims the bulk of duties she performed for the chain during her career were non-managerial. She's now suing Pizza Hut for unpaid overtime, and as many as 3,100 approved litigants may join her in a class-action suit that potentially could cost the chain $300 million.

One key to avoiding such problems, said Sandra Wickland, an attorney with the law firm of Peter Singler, is to have job descriptions clearly defined and within the law.

"If you properly classify those people, you'll not expose yourself to litigation risks," said Wickland, whose firm is in Sebastopol, Calif. "And there's a lot of litigation out there right now that's focused on this."

Even with a good job description, employers could be out of compliance if the bulk of their managers' duties aren't managerial, said George May, a wage and hour consultant at Edwards Ballard Law Firm in Spartanburg, S.C.

"I'm not saying don't use job descriptions; do use them," said May, who worked for

What's Important

This year's overhaul of the Fair Labor Standards Act is the first of this magnitude since its initial passing in 1949.

The new regulations, experts say, do well to clarify gray areas regarding job duties for overtime-exempt and non-exempt employees.

The new changes became legal on Aug. 23, but wrangling between the White House, the Senate and the House of Representatives may nullify them before year's end.

the Department of Labor as a job site investigator for 30 years. "But as an investigator, I didn't rely on them a whole lot. I relied on interviews where people told me what they really did on the job.

"If it was a pizza place that might have an assistant cook getting paid a salary, I wanted to see if he had supervisor duties. Then I wanted to know how much time he spent cooking. They may have a job description for him, but I want to know if he's following it."

A good thing?

Just like the National Restaurant Association, Duerr and Wickland view the new revisions to the FSLA as positive. The revisions more clearly define exempt and non-exempt employee status, plus they give operators new authority for disciplining salaried personnel.

According to Duerr, under the old regulations, operators could discipline managers for major safety violations only. And if they moved to suspend them, they could do so in one-week increments only.

Under the new conduct rule, managers can be suspended for offenses such as sexual harassment, substance abuse or workplace violence. Additionally, suspensions can occur in full-day increments and be accompanied by proportionate reductions in pay.

"In the old days, if you disciplined (a manager) by docking their pay for three days, they're no longer being paid on a salaried basis and they're no longer an exempt employee," said Duerr. "And what was even more critical was that if you did that to one person, everybody else who was 'similarly situated,' i.e. all other exempt people, would also lose their exemption, because that meant their pay was subject to deduction. You can see how that turned into a lot of money" if a lawsuit was filed.

Before you celebrate the changes, Duerr delivers one caveat: Know whether the labor laws of your state or local jurisdiction supersede federal laws. Currently Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Pennsylvania, Washington, West Virginia and Wisconsin have labor laws that surpass federal laws.

"I like to put it this way," Duerr said. "Whichever would require you to pay the most is the one that applies."

Wickland said the added clarity of the new regulations could help reduce litigation some, but "I think there are always gray areas that could probably be further clarified through litigation."

May, however, said the amount of litigation depends mostly on whether operators obey the rules.

"It think it could open the door to litigation if (an investigator) goes in and finds a supervisor who doesn't have the ability to hire or fire," he said. "They've got to make sure their employees have that authority."

Were May an investigator again, he said he'd look for accurate time records that detail what every employee does, and then he'd interview any managers to see if their duties reflected their actual work. Violations, he said, happen most often in independent operations where the operators don't know the rules, and that can be costly.

Beware the veto

Despite all the changes and their current legality, none of it may last. In September, the U.S. House of Representatives voted 223-193 to

Addtional Resources

For more detailed information on this year's changes to the Fair Labor Standards Act, visit these Web sites:* The National Restaurant Association* The U.S. Department of Labor

overturn the revisions.

Many lawmakers and labor groups, such as the AFL-CIO, believe the changes will eliminate overtime pay for as many as 6 million middle- to low-income-earning Americans. The Department of Labor, however, contends that as many as 1.3 million low-wage-earning managers will get a salary boost.

The move to void the new overtime changes went before the House as an amendment to a $142.5 billion national spending bill for health, education and job training programs that would take effect in 2005. The White House has threatened to veto the entire bill if the FSLA changes don't remain, but unfortunately for President Bush, the Senate appears sympathetic to the House's position.

Election year politics, Duerr said, will play a key role in whether the new regulations last into 2005.

"You saw republicans, who generally show party unity, crossing the line to vote against it," he said. "This is a big labor issue and they're in reelection campaigns. ... If all this is delayed past the November elections, there's a greater likelihood these provisions will be stripped from the bill and Bush will not have to exercise the veto. But if they can address it before the elections, that puts Bush in a very difficult situation."

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