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You are now a “Manager”. Forget paying overtime.

You are now a “Manager”.  Forget paying overtime.

Beginning in 2014, Tiffany Palliser worked for four years at Panera Bread in South Florida, making salads and operating the register for shifts that started at 5 a.m. and often lasted well into the late afternoon.

Ms. Palliser estimates that she worked an average of at least 50 hours per week. But she says she received no overtime pay.

The reason? Panera officially considered her a manager and paid her an annual salary instead of an hourly basis. Ms Palliser said she was often told that “that’s what you signed up for” by becoming an assistant manager.

Federal law requires employers to pay hourly workers over 40 hours and most employees earning under a certain amount one and a half hours of overtime, currently about $35,500 a year. Companies don’t have to pay overtime to employees earning above this amount if they are real managers.

Many employers say that managers who earn relatively modest salaries have real responsibilities and opportunities for advancement. The National Retail Federation, a retail group, has written that such leadership positions are “an important step up the ladder of professional success, particularly for many individuals without a college degree.”

But according to a recent study by three academics, Lauren Cohen, Umit Gurun and N. Bugra Ozel, many companies pay frontline workers salaries just over the federal limit and falsely label them managers to deny them overtime.

Because the legal definition of a manager is vague and little-known—the employee’s “principal job” must be management, and the employee must have real authority—the mislabeled managers have a hard time pushing back, even if they mostly do grunt work.

The paper found that from 2010 to 2018 managerial titles were nearly five times as common among workers at or just above the federal mandatory overtime salary limit as among workers just below the limit in a large database of job postings.

“To think that this would happen without these types of games is ridiculous,” said Dr. Cohen, a professor at Harvard Business School, in an interview.

dr Cohen and his co-authors estimate that the practice of falsely referring to workers as managers in order to deny them overtime, often relying on dubious-sounding titles such as “main reserve worker” and “grocery truck manager,” costs workers about US$4 billion dollars per year, or more than $3,000 per employee with misidentification.

And the practice seems to be on the rise: Dr. Cohen said the number of jobs with dubious-sounding managerial titles increased over the time he and his co-authors studied.

Federal data seems to underscore this trend, showing that the number of managers among the workforce increased by more than 25 percent from 2010 to 2019, while the total number of employees increased by about half that percentage.

From 2019 to 2021, the workforce shrank by millions, while the number of executives did not falter. Lawyers representing workers said they suspect companies were even more likely to mislabel employees as managers during the pandemic to shave off overtime while they were understaffed.

“There was a shortage of people who had children at home,” said Catherine Ruckelshaus, general counsel of the National Employment Law Project, a workers’ advocacy group. “I’m sure that upped the ante.”

However, Ed Egee, a vice president of the National Retail Federation, argued that the labor shortage will most likely cut the other way, giving lower-level managers the opportunity to negotiate better wages, benefits and schedules. “I would almost say there has never been a time when these workers have been more empowered,” he said. (From 2019 to 2021, wages for all workers grew much faster than managerial wages, although managerial wages grew slightly faster last year.)

Experts say the denial of overtime pay is part of a broader strategy to lower labor costs over the past few decades by staffing stores with as few workers as possible. When an employee calls in sick or more clients turn up than expected, the misclassified manager is often asked to perform the duties of an ordinary employee at no additional cost to the employer.

“That way, they can make sure they don’t hire more staff than they need to,” said Deirdre Aaron, a former Labor Department attorney who has handled numerous overtime cases in her private practice. “They have deputy managers there who can fill the gap.”

Ms Palliser said her normal shift at Panera ran from 5am to 2pm, but was often called to help close the store when there were staff shortages. If an employee did not show up for an afternoon shift, she usually had to stay on to cover.

“I would say, ‘My kids will be out of school at 2. I have to pick them up, I can’t do this anymore,'” said Ms. Palliser, who earned between $32,000 and $40,000 a year as an assistant manager. She said her husband later quit his job to help them with childcare.

She won part of a multimillion-dollar settlement in a lawsuit accusing a Panera franchisee, Covelli Enterprises, of failing to pay overtime to hundreds of assistant managers. Panera and representatives from the franchise did not respond to requests for comment.

Gassan Marzuq, who earned about $40,000 a year as a Dunkin’ Donut manager for several years through 2012, said in a court filing that he worked about 70 hours or more in a typical week. He said he spent 90 percent of his time doing tasks like serving customers and cleaning, and that he couldn’t delegate that work “because you’re always short of staff.”

Mr. Marzuq eventually won a $50,000 settlement. An attorney for TJ Donuts, owner of the Dunkin’ Donuts franchise, said the company disputed Mr. Marzuq’s allegations, claiming “that he was properly classified as a manager”.

Workers and their lawyers said employers took advantage of their desire to climb the ranks to keep labor costs down.

“Some of us want a better opportunity, a better life for our families,” said Gonzalo Espinosa, who said he often worked 80-hour weeks as the manager of a Jack in the Box in California in 2019, but he didn’t get that overtime pay. “They use our weakness to their advantage.”

Mr. Espinosa said his salary of just over $30,000 was based on an hourly wage of about $16 for a 40-hour week, implying his actual hourly wage was closer to half that amount — and well under the state minimum wage. The franchise did not respond to requests for comment.

The paper by Dr. Cohen and his co-authors provide evidence that financially troubled firms are more likely to classify regular workers as managers, and that this tactic is particularly common in low-wage industries such as retail, hospitality, and janitorial services.

Still, lawyers who bring such cases say the practice also occurs regularly in industries like technology and banking.

“They have a job title like relationship manager or personal banker, and they greet you and try to get you to open an account,” said Justin Swartz, a partner at Outten & Golden. “They are not managers at all.”

Mr Swartz, who estimated he had helped bring more than two dozen overtime lawsuits against banks, said some involved a so-called branch manager at a large store, who was the only on-site bank teller and largely performed the duties of a teller.

The practice appears to have become more difficult in recent years as more employers require workers to sign contracts with mandatory arbitration clauses barring lawsuits.

Many of the cases “are no longer economically viable,” Mr. Swartz said, citing the increasing difficulty of getting them individually through arbitration.

Some lawyers said that just raising the limit below which workers automatically receive overtime pay would likely curb misclassification in a meaningful way. With a higher limit, it is often cheaper to just pay workers overtime than to avoid overtime costs by significantly increasing their pay and stamping them managers.

“That’s why companies fought it so hard under Obama,” said Ms. Aaron, a partner at Winebrake & Santillo, alluding to a 2016 Labor Department regulation that raised the overtime limit from about $23,500 to about $47,500 -dollar was raised. A federal judge suspended the rule, arguing that the Obama administration had no authority to raise the salary cap by such a large amount.

The Trump administration later passed the current limit of about $35,500, and the Biden administration has indicated it will propose raising the limit significantly this year. Business groups say such a change won’t help many workers, as employers are likely to cut base wages to offset overtime pay.

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