Stephen Whiteway of
California filed a class action lawsuit against his employer, FedEx Kinko’s,
charging that the company misclassified about 490 “center managers” (CMs) like
himself as exempt from overtime. We’ll explain how FedEx Kinko’s successfully
defended its CMs’ exempt classification and won a dismissal of the class action
claim. This case provides a practical roadmap to the requirements for the
executive or managerial exemption from overtime.
Center Managers’ Duties
FedEx Kinko’s operates
about 200 retail stores—or centers—in
organized into districts headed by a district manager.
The company has various
types of centers. “Hub centers” are full-service retail and commercial stores, generally
bigger and busier than “spoke centers.” Several spoke centers are associated
with each hub, and the hub oversees operations at the spoke. Hub CMs manage the
overall operations of the hub and spokes, although each spoke center has its
own CM. There are also “standalone centers” and “ship centers,” both of them
headed by CMs.
All hub, spoke, and
standalone CMs are required to: achieve the company’s sales and profit objectives;
supervise, hire, train, and evaluate employees; recommend wage increases and
promotions; initiate disciplinary proceedings; terminate employees; supervise
marketing initiatives; manage inventory and machinery; comply with safety laws;
and ensure employees are following and applying company policies and procedures.
CMs are evaluated based on their leadership skills and business results.
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Exempt Classification
Defended
A federal court in
properly classified as exempt managers under
Wage Order 7 (mercantile industry).1
The court laid out the
requirements for the managerial or executive exemption and explained how the FedEx
Kinko’s CMs satisfied each one:
1. The employee’s duties
and responsibilities involve managing the enterprise or a customarily
recognized department or subdivision. The court agreed with the company’s contention
that as the only exempt employees at a center, each CM was essentially the “captain
of his or her ship” and had a wide range of management responsibilities, such
as hiring and training, directing work, setting pay rates, handling complaints
and grievances, appraising productivity and efficiency, and planning work.
Also, even though some nonexempt employees at the centers occasionally handled
CM duties, this didn’t render CM work nonexempt, as “delegation is itself an
exempt duty.”
2. The employee
customarily and regularly directs the work of two or more other employees. CMs supervised between
five and 35 employees. The CMs were the only supervisory employees regularly
present at centers to handle day-to-day management duties. Even though CMs
themselves had supervisors (district managers), this didn’t negate the CMs’ own
managerial duties.
3. The employee has the
authority to hire or fire, and his or her recommendations for hiring, firing,
promotion, or other status changes are given particular weight. CMs unilaterally made
hiring decisions when they determined a hiring need, and district managers were
not usually involved, particularly for nonmanagement positions. CMs also had
authority to fire without consulting the district manager. CMs had to consult
with human resources on terminations, but this didn’t undermine exempt status
as long as the CMs’ recommendations were given particular weight, as the
evidence showed they were.
4. The employee
customarily and regularly exercises discretion and independent judgment. The court rejected the
employees’ argument that CMs had no room for discretion because they had to
follow the company’s standardized policies and procedures as laid out in the company’s
400-page manual. The existence of detailed policy manuals, said the court, didn’t
undercut the CMs’ exercise of discretion and independent judgment.
5. The employee is
primarily engaged—spends more than half of his or her work time—in exempt
duties, including work that is directly and closely related to exempt work. Evidence showed that CMs
spent the majority of their time on exempt functions, including: human
resources matters; planning; communicating with upper management; audits;
managing shipping services; customer service issues requiring managerial input;
overseeing sales and marketing; scheduling and delegating work; managing
payroll; and controlling financials. What’s more, CMs were evaluated based on
their performance of managerial duties and achievement of business and
financial goals at their centers—all of which pertain to exempt functions.
6. The employee earns a
monthly salary at least two times the state minimum wage. All CMs earned an annual
salary in the $50,000 to $100,000 range, well above the requirement.
Classification Tips
To avoid errors when
classifying employees under the overtime exemption laws, make sure each job description
accurately reflects an employee’s duties and then compare it to the
requirements the court laid out in this case. Also, even though it wasn’t an
issue in the FedEx Kinko’s case, keep in mind that job titles don’t determine
an employee’s exempt status; what matters is whether the employee performs
exempt work.
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1 Whiteway v. FedEx Kinko’s
Office & Print Servs., Inc., U.S.D.C. (N.D.