11th Circuit Sends Overtime Pay Calculation Back to Jury

April 1, 2008 (PLANSPONSOR.com) - In a case in which it was decided that salaried managers were owed overtime pay, the 11th U.S. Circuit Court of Appeals has ordered a new trial on damages only.

A number of store managers brought a lawsuit under the Fair Labor Standards Act (FLSA) claiming that despite their title of manager, they did not have management duties and, therefore, were not “executives” exempt under the FLSA. A jury agreed and awarded the store managers $297,700.

On appeal, the appellate court upheld the jury’s conclusion that the store managers were not executives exempt from overtime under the FLSA, but found issues with the calculation of damages.   In its opinion, the court said that the jury from the first trial not only erroneously calculated overtime pay due to store managers of Farm Stores Grocery Inc. based on the instructions it was given, but that the instructions were wrong in the first place. The court noted that the instructions for calculating the damages given to the jury used a different formula for calculating the managers’ regular rate of pay than that provided in an interpretive bulletin from the Department of Labor.

However, even using the instructions given, the jury miscalculated the damages award. In one case, the court said, the jury awarded a store manager overtime pay that was 38 times greater than what would have been awarded if the erroneous instructions were followed.

“Duties” Bound?

The court rejected Farm Stores argument that the jury was wrong in determining that the store managers’ primary duties were not managerial and therefore they did not fall into the executive exemption of the Fair Labor Standards Act (FLSA). According to the opinion, there was reasonable evidence presented for the jury to come to its conclusion.

An employee is an “executive” under the FLSA if the worker:

  • Earns a salary of at least $250 a week and is paid on a salary basis.
  • Manages, as their primary duty, a recognized department or subdivision.
  • Regularly directs two or more employees.

Facts and Circumstances

The appellate court rejected Farm Stores’ argument that overseeing a free-standing business location alone was enough to consider the store managers executives, instead embracing a facts and circumstances approach to each case, including, in the opinion of the court, a review of several factors:

  • The amount of time spent performing managerial duties.
  • The relative importance of the individual’s managerial and nonmanagerial duties.
  • The frequency with which the store managers exercise discretionary powers, and their relative freedom from supervision
  • The relationship between the store managers’ wages and the wages paid to other employees performing similar, nonexempt work.

The appellate court said that store managers spent significantly less than half their time managing the stores, instead concluding that district managers really managed the stores.  It found additional support for that sense by noting that the managers’ pay, when reduced to an hourly rate, was comparable to that of sales associates’.

As for the issue of damages, the appellate court determined that the trial court’s instruction to the jury to calculate the store managers’ “regular rate” by dividing the hours actually worked during a week into their weekly salary was incorrect. The error was compounded when the jury’s ultimate damages verdict “ended up well outside the boundaries of the evidence.”

Farm Stores had asked for a remittitur reducing the damages down to the maximum amount that could have been awarded under the erroneous – but unobjected to – instruction, but the appellate court decided to order a new trial with proper jury instruction based on provisions of the FLSA and DoL guidance.

The opinion in Rodriguez v. Farm Stores Grocery Inc. is here .

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