New evidence shows that many employers are mislabeling rank-and-file workers as managers to avoid paying them overtime.
For four years beginning in 2014, Tiffany Palliser worked at Panera Bread in South Florida, making salads and operating the register for shifts that began at 5 a.m. and often ran late into the afternoon.
Ms. Palliser estimates that she worked at least 50 hours a week on average. But she says she did not receive overtime pay.
The reason? Panera officially considered her a manager and paid her an annual salary rather than on an hourly basis. Ms. Palliser said she was often told that “this is what you signed up for” by becoming an assistant manager.
Federal law requires employers to pay time-and-a-half overtime to hourly workers after 40 hours, and to most salaried workers whose salary is below a certain amount, currently about $35,500 a year. Companies need not pay overtime to salaried employees who make above that amount if they are bona fide managers.
Many employers say managers who earn relatively modest salaries have genuine responsibility and opportunities to advance. The National Retail Federation, a trade group, has written that such management positions are “key steps on the ladder of professional success, especially for many individuals who do not have college degrees.”
But according to a recent paper by three academics, Lauren Cohen, Umit Gurun and N. Bugra Ozel, many companies provide salaries just above the federal cutoff to frontline workers and mislabel them as managers to deny them overtime.
Because the legal definition of a manager is vague and little known — the employee’s “primary” job must be management, and the employee must have real authority — the mislabeled managers find it hard to push back, even if they mostly do grunt work.
The paper found that from 2010 to 2018, manager titles in a large database of job postings were nearly five times as common among workers who were at the federal salary cutoff for mandatory overtime or just above it as they were among workers just below the cutoff.
“To believe this would happen without this kind of gaming going on is ridiculous,” Dr. Cohen, a Harvard Business School professor, said in an interview.
Dr. Cohen and his co-authors, professors at the University of Texas at Dallas, estimate that the practice of mislabeling workers as managers to deny them overtime, which often relies on dubious-sounding titles like “lead reservationist” and “food cart manager,” cost the workers about $4 billion per year, or more than $3,000 per mislabeled employee.
And the practice appears to be on the rise: Dr. Cohen said the number of jobs with dubious-sounding managerial titles grew over the period he and his co-authors studied.
Federal data appear to underscore the trend, showing that the number of managers in the labor force increased more than 25 percent from 2010 to 2019, while the overall number of workers grew roughly half that percentage.
From 2019 to 2021, the work force shrank by millions while the number of managers did not budge. Lawyers representing workers said they suspected that businesses mislabeled employees as managers even more often during the pandemic to save on overtime while they were short-handed.
“There were shortages of people who had kids at home,” said Catherine Ruckelshaus, the general counsel of the National Employment Law Project, a worker advocacy group. “I’m sure that elevated the stakes.”
But Ed Egee, a vice president at the National Retail Federation, argued that labor shortages most likely cut the other way, giving low-level managers the leverage to negotiate more favorable pay, benefits and schedules. “I would almost say there’s never been a time when those workers are more empowered,” he said. (Pay for all workers grew much faster than pay for managers from 2019 to 2021, though pay for managers grew slightly faster last year.)
Experts say the denial of overtime pay is part of a broader strategy to drive down labor costs in recent decades by staffing stores with as few workers as possible. If a worker calls in sick, or more customers turn up than expected, the misclassified manager is often asked to perform the duties of a rank-and-file worker without additional cost to the employer.
“This allows them to make sure they’re not staffing any more than they need to,” said Deirdre Aaron, a former Labor Department lawyer who has litigated numerous overtime cases in private practice. “They have assistant managers there who can pick up the slack.”
Ms. Palliser said that her normal shift at Panera ran from 5 a.m. to 2 p.m., but that she was often called in to help close the store when it was short-staffed. If an employee did not show up for an afternoon shift, she typically had to stay late to cover.
“I would say, ‘My kids get out of school at 2. I have to go pick them up, I can’t keep doing this,’” said Ms. Palliser, who made from about $32,000 to $40,000 a year as an assistant manager. She said her husband later quit his job to help with their child-care responsibilities.
She won a portion of a multimillion-dollar settlement under a lawsuit accusing a Panera franchisee, Covelli Enterprises, of failing to pay overtime to hundreds of assistant managers. Panera and representatives of the franchise did not respond to requests for comment.
Gassan Marzuq, who earned a salary of around $40,000 a year as the manager of a Dunkin’ Donuts for several years until 2012, said in a lawsuit that he had worked roughly 70 hours or more in a typical week. He testified that he had spent 90 percent of his time on tasks like serving customers and cleaning, and that he could not delegate this work “because you’re always short on staff.”
Mr. Marzuq eventually won a settlement worth $50,000. A lawyer for T.J. Donuts, the owner of the Dunkin’ Donuts franchise, said the company disputed Mr. Marzuq’s claims and maintained “that he was properly classified as a manager.”
Workers and their lawyers said employers exploited their desire to move up the ranks in order to hold down labor costs.
“Some of us want a better opportunity, a better life for our families,” said Gonzalo Espinosa, who said that in 2019 he often worked 80 hours a week as the manager of a Jack in the Box in California but that he did not receive overtime pay. “They use our weakness for their advantage.”
Mr. Espinosa said his salary of just over $30,000 was based on an hourly wage of about $16 for a 40-hour workweek, implying that his true hourly wage was closer to half that amount — and well below the state’s minimum wage. The franchise did not respond to requests for comment.
The paper by Dr. Cohen and his co-authors includes evidence that companies that are financially strapped are more likely to misclassify regular workers as managers, and that this tactic is especially common in low-wage industries like retail, dining and janitorial services.
Still, lawyers who bring such cases say the practice also occurs regularly in white-collar industries such as tech and banking.
“They have a job title like relationship manager or personal banker, and they greet you, try to get you to open account,” said Justin Swartz, a partner at the firm Outten & Golden. “They’re not managers at all.”
Mr. Swartz, who estimated that he had helped bring more than two dozen overtime cases against banks, said some involved a so-called branch manager inside a big-box store who was the only bank employee on site and largely performed the duties of a teller.
The practice appears to have become more difficult to root out in recent years, as more employers have required workers to sign contracts with mandatory arbitration clauses that preclude lawsuits.
Many of the cases “are not economically viable anymore,” said Mr. Swartz, citing the increased difficulty of bringing them individually through arbitration.
Some lawyers said only an increase in the limit below which workers automatically receive overtime pay is likely to meaningfully rein in misclassification. With a higher cutoff, simply paying workers overtime is often cheaper than avoiding overtime costs by substantially increasing their pay and labeling them managers.
“That’s why companies fought it so hard under Obama,” said Ms. Aaron, a partner at Winebrake & Santillo, alluding to a 2016 Labor Department rule raising the overtime limit to about $47,500 from about $23,500. A federal judge suspended the rule, arguing that the Obama administration lacked the authority to raise the salary limit by such a large amount.
The Trump administration later adopted the current cutoff of about $35,500, and the Biden administration has indicated that it will propose raising the cutoff substantially this year. Business groups say such a change will not help many workers because employers are likely to lower base wages to offset overtime pay.