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New Federal Overtime Laws May Be Pay Dirt for Franchise Employees

BY Andrew C. Selden
August 26, 2003

For years, franchisors and franchisees alike have assumed that most of their 'managers' are exempt from federal (and parallel state) wage-and-hour 'overtime' rules requiring payment of wages calculated at the standard rate multiplied by 150% of the hours worked over 40 hours per week. But a recent flurry of class action lawsuits challenging the classification of certain categories of employees (for example, franchised restaurant or hotel unit managers or shift supervisors) as exempted 'management' employees who are not entitled to 'time-and-a-half' overtime pay has brought this issue under close scrutiny. Plaintiffs are winning many of these cases, sometimes with huge recoveries for employees who worked many hours of uncompensated, or compensated but at straight time, overtime. Earlier this year, the U.S. Department of Labor (DOL) jumped into the arena with proposed revisions to long-standing federal rules under the Federal Fair Labor Standards Act (FLSA) that define who is and who is not entitled to overtime pay for hours over 40 per week.

The DOL introduced the proposed regulations on March 31, 2003, and it is currently seeking comments regarding the new rules. The comment period closes on June 30, 2003, after which the DOL will consider the comments and probably modify the proposed regulations before enacting them in their final form. (At this time, the proposed new regulations are not yet enacted, and the extent to which they may be changed before enactment is unknown.)

If enacted as proposed, the new regulations could bring about a widespread reappraisal by every employer, including most owners of franchised businesses, of the exempt versus nonexempt classification of employees in intermediate supervisory positions, such as a unit or shift manager in a restaurant, a department head in a hotel property, or an area manager in an automotive business.

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