Candy Company Settles Overtime Claims for $3 Million
Nine former and current employees filed suit against Russell Stover Candies, a manufacturer of fine chocolates, alleging the failure to pay overtime. Just over a year after the lawsuit was filed, Russell Stover has obtained court approval for a settlement of $3,075,000 with a class that grew to 103 claimants:
On May 28, 2014, U.S. District Judge Willis B. Hunt, Jr., authorized a settlement of $3,075,000.00 in the case of Cheryl Carter, et al. v. Russell Stover Candies, Inc., No. 1:13-cv-01522-WBH. The plaintiffs were represented by Arch Stokes, John Hunt and Margaret Stokes of Stokes, Wagner, Hunt, Maretz & Terrell in Atlanta, Georgia.
In Carter, nine individuals originally filed suit in May 2013 alleging that Russell Stover Candies had failed to pay them for the overtime hours they had worked. Each plaintiff was a present or former sales representative for the company and filed the lawsuit on behalf of themselves and other sales representatives. They alleged that they regularly had worked over 40 hours in a week during the previous three years. The plaintiffs also claimed that instead of actually selling Russell Stover products, they primarily had engaged in merchandising work, such as stocking and cleaning store shelves activities that generally require the payment of overtime under the federal wage and hour laws.
Russell Stover, the largest manufacturer of boxed chocolates in North America, denied the plaintiffs allegations. It contended that the plaintiffs were outside sales persons who had been properly classified as exempt from the overtime provisions of the FLSA.
The court subsequently allowed the case to proceed initially as a collective action. A total of 103 current and former Russell Stover sales representatives from across the country eventually joined the lawsuit as plaintiffs. Following three full days of mediation in Atlanta, the plaintiffs and the company reached a settlement that then was subject to review and approval by the court. Under the terms of the parties agreement, each of the 103 class members will receive a settlement payment by June 11, 2014.
This is an extraordinarily large settlement. It is also a perfect example of the dangers many employers face by skirting or not paying attention to their overtime exemptions. Russell Stover is not an unsophisticated enterprise. It has 4,500 employees with a highly organized personnel and HR department. How did it fall prey to a $3 Million overtime claim?
To say that the Fair Labor Standards Act's overtime rules are antiquated would be an understatement. I like to use the word byzantine. The rules were written in the 1930s and very little has changed over the life of the FLSA. Employers often make the mistake of paying someone a "salary" regardless of the hours they actually work and believe they are in compliance with the FLSA. But a salary does not make someone exempt from overtime pay if they do not otherwise fall within one of the exempt classifications provided by the FLSA. Paying someone on a salary basis is a necessary condition for the three primary exemptions (executive, administrative, and professional) to apply (hence, the "salary basis" test). However, the person's job duties must first place him or her within an exemption offered by FLSA. If that is not the case, paying the employee a salary will NOT make them exempt. You do not want to learn this lesson the hard way. A claim for overtime can reach back three years. When this is multiplied across dozens of employees, the numbers tend to add up fast.
What should you do? Review your overtime pay practices. Focus on the employees you are not paying overtime. How many hours are they working in a week? Is it more than 40? If you are paying them a salary and believe they are exempt, you are probably not keeping track of their hours. How confident are you that they fit into one of the exemptions? If you are not sure, then it is time to review it more closely. One good rule of thumb is if the number of employees eligible for overtime outnumbers the employees not eligible for overtime, you may need to take a closer look. The Department of Labor certainly will.