By: Casey Cosentino
A hotel management company was recently hit with a putative class action in federal court for allegedly failing to compensate hotel employees overtime pay at one and one-half times their regular rate of pay for all hours worked over 40 hours in a workweek. As the chief engineer, the lead plaintiff was classified as an executive employee and, thus, was exempt from overtime requirements under the Fair Labor Standards Act (“FLSA”). The lead plaintiff asserts, however, that he was misclassified under the Executive exemption because he “regularly and routinely performed non-exempt tasks . . . including but not limited to, upkeep of the hotel and its grounds, and building and property maintenance; and supervised no more than one other employee.” As such, the complaint contends, among other things, that he and other similarly situated employees unlawfully worked between 50 and 60 hours per week without receiving overtime pay.
As evidenced by this case, a constant issue challenging the hospitality industry is the proper classification of employees as exempt under the Executive exemption when those employees regularly and routinely perform non-exempt duties. By way of background, the FLSA requires employers to pay employees at one and one-half times their regular rate of pay for hours worked in excess of 40 hours; however, there are exemptions from overtime pay for an employee employed as bona fide executive, professional, administrative, outside Sales, and computer professional. Specifically, to qualify for the Executive exemption, employees must meet all of the following requirements:
1. The employee must be compensated on a salary basis at a rate not less than $455 per week;
2. The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
3. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
4. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
A “primary duty” under the Executive exemption is the “principal, main, major or most important duty that the employee performs.” 29 C.F.R. § 541.700(a). Notably, an executive employee is not precluded from exempt status for performing non-exempt work when his/her primary duty is to perform managerial duties such as interviewing, directing work, appraising work performance, and delegating assignments. Determination of an employee’s primary duty is based on all the facts in a particular case, and not solely on the amount of time spent on a particular aspect of the employee’s job. Indeed, “[e]mployees spending less than fifty percent of their time on managerial aspects can nonetheless satisfy the primary duty requirement under other relevant facts of the case,” including:
· Importance of exempt duties as compared with other types of duties;
· Amount of time spent performing exempt work;
· Employee’s relative freedom from direct supervision; and
· Relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.
Most industries have experienced the tidal wave of wage and hour class action suits with respect to misclassifying exempt employees, and the hospitality industry is no exception. Because it is common for exempt employees in the hospitality industry to perform non-exempt duties, hotels classifying or planning to classify employees under the Executive exemption should ensure that their primary duty is managerial functions. Moreover, as a best practice, prudent hotel operators should regularly review their wage and hour practices to ensure compliance with federal and state laws. In doing so, hotel operators should: (1) review and update employee classifications and job descriptions; (2) audit their payroll practices with an emphasis on overtime calculation, meal and rest break periods, and salary deductions; and (3) determine whether “preliminary” and “postliminary” job tasks are compensable work time. Identifying and correcting wage and hour mistakes before plaintiffs collectively march to the courthouse is vital to defending class action wage and hour suits and reducing legal liability.