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"Exempt" But Not From Overtime Pay
May 01, 1998-A class of restaurant managers sued the Italian-style restaurant chain, Sbarro, Inc., under the federal wage-hour law for three years of back overtime pay, claiming the mere existence of a cash and inventory control policy made the managers non-exempt and, therefore, entitled to overtime pay for all hours in excess of 40 in any given work week. Sbarro's policy required managers to sign an acknowledgement at the time of hire, agreeing to reimburse the company either through payroll deduction or by out-of-pocket payment, for certain cash and inventory shortages occurring in the restaurant while under the manager's supervision. Managers could be disciplined for violating this policy, but reimbursement of the loss by the manager could possibly mitigate discipline.
According to the managers' claim, the policy allowing either the docking of wages or requiring out-of-pocket reimbursement by them contemplated inappropriate reductions in pay because they amounted to a forced "kickback" of base wages. The argument is that the policy strips the managers of their exempt salary status. The status is dependent upon payment on a "salary basis" which by definition requires a predetermined amount of pay not subject to reduction due to quantity or quality of work.
The federal district court in New York preliminarily ruled in favor of the managers and refused to dismiss the lawsuit, despite the company's argument that no actual deductions in pay ever occurred under the policy and that any out-of-pocket reimbursements by managers were not disqualifying reductions in compensation. The court agreed to revisit the issues after more facts were developed in the lawsuit. Under the law, if actual deductions in compensation occurred or if the cash control policy created a significant likelihood of improper deductions in pay, the exempt status would not be available to those managers and they would be entitled to three years of overtime.
As a result of Sbarro, employers should carefully review their employment policies to determine whether any policy creates the significant likelihood of improper deductions in the compensation of salaried exempt employees.
