Case Roundup

New rulings have been issued on the executive exemption from overtime, tip pooling, and minimum wage law violations.

Executive exemption from overtime. The U.S. Court of Appeals for the Fourth Circuit has ruled that a manager in a retail establishment was exempt from overtime under the executive exemption in the Fair Labor Standards Act (FLSA), even though she claimed that she spent the bulk of her workweek performing nonmanagerial duties, such as working at the cash register and stocking shelves [In re Family Dollar FLSA Litigation, CA4, Dkt. No. 09-2029, 3/22/11].

The manager was paid a fixed salary plus a bonus.

The court noted that 29 USC 213(a)(1) of the FLSA does not require retail executives to spend the majority of their time on executive functions to be exempt from overtime. The court also pointed out that the manager was the highest level employee at the store, and her income depended on: (1) the success of her performance, and (2) the profits of the store. The court said that even when the manager was simply standing around or stocking shelves, she remained responsible for addressing any problem that could and did arise during the course of the daily retail operations. She was the store's only manager, and in the absence of her management, her store could not have functioned.

Tip pooling. The U.S. District Court of Maryland has ruled that Jason Zink, the sole owner of two taverns, who was also a bartender at the establishments, could not share in the bartenders' tip pool. The tip credit exception in the FLSA allows employers to pay tipped employees as little as $2.13 an hour and still be in compliance with the law. The other bartenders argued that Zink should not be allowed to take both a tip credit on their wages, and share in employees' tips.

The court agreed with the bartenders. It pointed out that “as the sole owner of the Taverns, Mr. Zink is essentially the sole beneficiary of the tip credit provision of the FLSA. As such, he is prohibited from participating in the tip pool at the Taverns. A contrary finding, allowing an owner to participate in a tip pool, would broaden the FLSA's tip credit provisions to a point where they would become meaningless.” The court noted that while this was an issue of first impression in Maryland, in other states where the same issue has been raised, it has been determined that the FLSA expressly prohibits employers from participating in employee tip pools. In addition, the court determined that Maryland wage-hour law was also violated as a result of Zink's participation in the tip pool [Gionfriddo v. Zink, DC MD, Dkt. No. RDB-09-1733, 3/11/11].

Minimum wage law violations. A federal district court has ruled that an employer violated the minimum wage laws when it paid foreign workers on temporary assignment in the U.S. on a piece-rate basis (by weight of crab picked), because the weekly pay earned through the piece rate was less than the minimum wage rate mandated by federal law. In addition, the employer violated the minimum wage laws when it reduced the wages of the workers below the minimum wage rate by deducting from their paychecks certain costs incurred for the benefit of the employer, such as visa, transportation, and border-crossing expenses.

The employer admitted to some violations of the minimum wage laws, but believed that the violations were short-term with respect to at least one worker, as she had only been employed for one month. The court said that the length of employment is irrelevant in determining whether an employer has violated the FLSA.

The court ruled that the employer's piece-rate violations were “willful” violations of the FLSA, but the deductions from employee paychecks were not “willful” violations due to a lack of evidence submitted by the workers. The statute of limitations period for violations of the FLSA is extended from two years to three years if employers are found to have willfully violated the law. During the statute of limitations period, an employee may recover back pay and an equal amount in liquidated damages [Gaxiola v. Williams Seafood of Arapahoe, Inc., DC NC, Dkt. No. 4:08-CV-134-H(3), 3/1/11].