Restaurant Manager Misclassification Complaints Highlight Important Defense Strategies for Hospitality Owner/Operators
Recent lawsuits filed by restaurant managers claiming they are entitled to overtime pay suggest that exempt employee misclassification may reemerge as a leading hot topic in wage and hour lawsuits directed at hospitality owner/operators. Three recent collective and class actions illustrate this apparent trend and, more importantly, highlight key defense strategies that owner/operators may use if faced with an exempt misclassification lawsuit.
Defense Strategy #1: Analyze the complaint for gaps in the pleading that could support a motion to dismiss or, alternatively, a motion to strike the collective and class action allegations
In Stirewalt et al. v. Hooters of America, LLC et al., No. 17-CV-0307 (N.D. Ala. Feb. 27, 2017), three assistant managers in certain Birmingham, Alabama, Hooters restaurants asserted claims for unpaid overtime under the Fair Labor Standards Act (“FLSA”), alleging that Hooters misclassified them as exempt from overtime. The plaintiffs alleged that they were not bona fide managers because they did not exercise any managerial or supervisory authority that would qualify them for coverage pursuant to the executive exemption, such as the ability to hire, fire, set work schedules, or discipline employees. Nor could they independently control merchandise, price products, or decide how to display them. Instead, plaintiffs claimed, they were often required to perform non-exempt tasks, such as running the cash register, stocking merchandise, and working in the kitchen.
The lawsuit purports to represent a putative collective action comprised of all Hooters assistant managers, but it proffers no facts establishing that there were other similarly situated assistant managers. In fact, the complaint fails to ascribe a geographic scope to the universe of the putative collective action. Where collective or class action allegations lack such factual specificity—particularly with respect to the existence of similarly situated collective or class action members—hospitality owner/operators should consider a motion to dismiss for failure to plead or, alternatively, a motion to strike the collective and class action allegations.
Defense Strategy #2: Determine whether an existing action precludes a similar, subsequently filed lawsuit
In Clendenen v. Steak N Shake Operations, Inc., No. 17-CV-1045 (C.D. Ill. Jan. 30, 2017), the plaintiff manager alleges that Steak N Shake misclassified her as exempt from overtime under the executive and administrative exemptions under the FLSA and Illinois law. In its motion to dismiss, Steak N Shake invoked a procedural defense commonly referred to as the “first filed” rule. The first-filed rule may preclude a lawsuit in favor of an earlier filed action where there is a substantial degree of similarity between the two cases, the balance of convenience favors preclusion of the subsequent lawsuit, and there is an absence of special circumstances that would obviate priority to the first-filed lawsuit. In Clendenen, the defendant argued that the action was duplicative because a previously filed pending collective action brought against Steak N Shake managers in another federal district, Drake v. Steak N Shake Operations, Inc., No. 14-CV-1535 (E.D. Mo.), involved substantially the same facts, the same parties, and the same central issue—namely, whether Steak N Shake restaurant managers are exempt. In opposition, the plaintiff argued that there is no overlap between the two cases. Before Clendenen filed her lawsuit, the district judge in Drake ruled that only managers in one of Steak N Shake’s seven “Group Markets” (St. Louis) could participate in that FLSA collective action. In Clendenen, on the other hand, the St. Louis Group Market was expressly excluded from the FLSA class definition in the complaint, and Clendenen (and her purported putative classes) neither fell within the St. Louis Group Market nor received the FLSA collective action notice in Drake. It will be up to the district court to determine whether the plaintiff’s arguments present sufficient disparities between the two cases to reject the application of the first-filed rule.
Defense Strategy #3: Identify potentially preclusive arbitration agreements or class action waivers
In Patel v. Jack in the Box, Inc., No. 16-CV-2561 (S.D. Cal. Oct. 13, 2016), the defendant successfully compelled arbitration, and the complaint was dismissed pursuant to the parties’ Dispute Resolution Agreement (“DRA”). The plaintiff manager had alleged that, during his employment, he spent the majority of his day performing non-exempt tasks, such as counting inventory, taking customer orders, working the drive-through, and preparing food. The arbitration agreement also included a class action waiver precluding the plaintiff from asserting his claims on behalf of other purportedly similarly situated restaurant managers.
Like Steak N Shake in Clendenen, defendant Jack in the Box relied on a procedural defense to stymie the litigation. Under the DRA, the plaintiff had expressly agreed that FLSA claims and other disputes pertaining to wages and overtime under federal, state or local law would be arbitrated. The district court agreed with Jack in the Box that the arbitration agreement was enforceable and covered the claims asserted in Patel’s complaint.
Hospitality owner/operators should take advantage of arbitration agreements and class action waivers to circumvent costly class and collective action litigation wherever possible. Owner/operators should be mindful, however, of the current circuit split regarding the enforceability of class action waivers in arbitration agreements in the context of the National Labor Relations Act. The Supreme Court of the United States recently granted certiorari to decide this issue.
The defendants’ early challenges to the plaintiffs’ lawsuits in Clendenen, Stirewalt, and Patel serve as an important reminder that owner/operators in the hospitality industry should evaluate pleading deficiencies and available procedural defenses that could potentially support an early dismissal of the litigation.