Hoffmann v. Sbarro, Inc.

Citation982 F.Supp. 249
Decision Date22 October 1997
Docket NumberNo. 97 Civ.4484 (SS).,97 Civ.4484 (SS).
PartiesKenneth HOFFMANN and Gloria Curtis, on behalf of themselves and all others similarly situated, Plaintiffs, v. SBARRO, INC., Defendant.
CourtU.S. District Court — Southern District of New York

Stewart, Estes & Donnell, M. Reid Estes, Jr., Jeffrey L. Peterson, Nashville, TN, for Plaintiffs.

George Shebitz & Assoc., Frederick J. Berman, New York City, for Plaintiffs.

Paul, Hastings, Janofsky & Walker, L.L.P., Ronald Kreismann, Samuel D. Rosen, New York City, for Defendant.


SOTOMAYOR, District Judge.

In this collective action brought under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201 et seq., the Court has before it two motions. The first, an order to show cause filed by plaintiffs, seeks the Court's approval for distribution of class notice and opt-in consent forms to potential plaintiffs. By implication, this motion asks the Court to decide whether plaintiffs' action may be maintained as a collective action under the FLSA. The second motion, brought by defendant, seeks judgment on the pleadings or, in the alternative, summary judgment.

For reasons discussed below, plaintiffs' motion is granted and defendant's motion is denied without prejudice to bringing a motion for summary judgment after the close of discovery.

I. Background

The FLSA requires covered employers to pay their employees overtime wages, at the rate of time and a half, for hours in excess of 40 hours worked in a single week. 29 U.S.C. § 207. Exempt, however, from the Act's overtime requirements are employees who are "employed in a bona fide executive, administrative, or professional capacity ... (as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor])." 29 U.S.C. § 213(a)(1). Because the FLSA is a remedial act, this exemption must be narrowly construed and the employer bears the burden of showing that a claimed exemption applied to its employees. See Martin v. Malcolm Pirnie, Inc., 949 F.2d 611, 614 (2d Cir.1991) (citing Corning Glass Works v. Brennan, 417 U.S. 188, 196-97, 94 S.Ct. 2223, 2229, 41 L.Ed.2d 1 (1974), and Mitchell v. Lublin, McGaughy & Associates, 358 U.S. 207, 211, 79 S.Ct. 260, 264, 3 L.Ed.2d 243 (1959)).

The administrative regulations promulgated pursuant to the FLSA establish both a salary test and a duties test for determining whether an employee is employed "in a bona fide executive, administrative or professional capacity." See 29 C.F.R. § 541.1 (executive); § 541.2 (administrative), § 541.3 (professional). The salary test contains two elements: a requirement that the exempt employee receive no less than a specified level of compensation, and a requirement that the employee's compensation be paid "on a salary basis." Plaintiffs' allegations in this case address only the latter component of the salary test: whether they have been paid "on a salary basis" as defined by 29 C.F.R. § 541.118(a). The regulations provide that to be paid "on a salary basis," an employee must receive compensation in "a predetermined amount ... not subject to reduction because of variations in the quality or quantity of the work performed." 29 C.F.R. § 541.118(a).1 The regulations further provide, in a subsection commonly referred to as the "window of correction," that in certain circumstances an employer that has made an improper deduction to salary can take corrective action to restore retroactively the employee's exempt status. 29 C.F.R. § 541.118(a)(6).

Defendant, Sbarro Inc. ("Sbarro"), operates a nationwide chain of Italian-style restaurants. Plaintiffs Kenneth Hoffmann ("Hoffmann") and Gloria Curtis ("Curtis") are the former general manager and co-manager, respectively, of the same Sbarro's restaurant in Memphis, Tennessee. Plaintiff Steve Bowers ("Bowers"), who "opted in" as a plaintiff on September 11, 1997, is a former general manager of two Sbarro restaurant locations — one in Mississippi, and one in Tennessee. Plaintiffs filed their Complaint on June 18, 1997, seeking to bring a collective action under the FLSA on behalf of all current and former Sbarro restaurant managers (except assistant managers) since 1993 for unpaid overtime compensation. Plaintiffs allege that Sbarro misclassified its restaurant managers as exempt "executive" employees, thereby circumventing the Act's overtime requirements, when in fact defendant's company-wide policies and practices violated the terms of the exemption.2 Specifically, plaintiffs charge that defendant violated the salary-basis test by requiring restaurant managers to reimburse the company for cash shortages, inventory shortages or other losses occurring under their supervision. Plaintiffs allege that they were required as a condition of their employment to sign a form agreement (called the "Agreement to Reimburse Losses") authorizing defendant to deduct from their wages the amount of any cash shortage or loss. Plaintiffs further allege that defendant implemented its reimbursement policy either by docking managers' paychecks or by requiring managers to make out-of-pocket reimbursements to the company. As a result of defendant's actions, plaintiffs claim that all restaurant managers employed by defendant during the last three years were in fact subject to reductions in their compensation and, therefore, are entitled to unpaid overtime, liquidated damages and attorney's fees and costs.

Defendant denies having committed any wrongdoing under the FLSA. However, defendant concedes that, prior to the filing of plaintiffs' Complaint, it had a cash control policy in place which required managers to reimburse the company for losses. Defendant also concedes that it required all restaurant managers to sign the Agreement to Reimburse Losses. In that regard, defendant has submitted to the Court "true and correct" copies of the "Sbarro Cash Control Policy" (Exhibit ("Exh.") D to Defendant's Notice of Motion for Judgment on the Pleadings (hereafter "Def. Notice of Motion")) and copies of the Agreement to Reimburse Losses signed by Hoffmann and Curtis (Exhs. B and C to Def. Notice of Motion). Moreover, defendant admitted to the Court during oral argument held on October 8, 1997, that pursuant to these policies, some restaurant managers (although defendant did not specify how many) in fact experienced salary deductions. (Transcipt of October 8, 1997 hearing ("Oct. 8 Tr.") at 2-3.)

(a) The Sbarro Cash Control Policy

The Sbarro Cash Control Policy explicitly directs itself to "management employees" and contains two sections: one on the duties of restaurant management and one on the duties of area directors.3 The section addressed to restaurant management sets forth the manager's duties for money-related activities, such as supervising cash registers, making deposits and handling cash. It further provides that "all restaurant management will sign an agreement to reimburse losses as a condition of their employment." Finally, the last section of the policy document, entitled "Disciplinary Procedure" states that:

Failure to follow the cash control policy outlined above is considered a severe breach of conduct and the General Manager and other management of the restaurant will be subject to disciplinary action up to and including termination or employment depending on the frequency and severity of the loss.... The willingness of the General Manager or other assigned managers to reimburse the company for losses will be considered in the disciplinary action taken.

(Exh. D to Def. Notice in Motion.) Nothing in the policy document is addressed to nonmanagerial employees.

(b) The Agreement to Reimburse Losses

The Agreement to Reimburse Losses, which defendant admits it included in all managers' hiring packets, states, in part:

I hereby authorize the Company to withhold from any wages, salary, bonus, vacation pay, and any other compensation due me for my services, and any other funds due me from the company or its affiliates, the total amount of such losses in installments as determined by the Company until said amount of such losses is paid in full.

(Exh. C to Def. Notice of Motion.) The Agreement also authorizes defendant to assign the manager's wages or other compensation to cover losses.

Defendant contends that it required all of its restaurant employees, both salaried and non-salaried, to sign the Agreement to Reimburse Losses. In particular, defendant stresses that assistant managers — who are non-salaried and non-exempt — were likewise required to sign the Agreement.

(c) Defendant's Allegations that It Rescinded the Policy

Defendant alleges that it has rescinded its cash control policy. As set forth in the affidavit of Jim O'Shea, defendant's Vice President of Human Resources, defendant asserts that following receipt of the Complaint in this action, it revised its cash control policy and announced a policy change in a memorandum dated July 22, 1997. (Affidavit of Jim O'Shea in Opposition to Plaintiffs' Request for Issuance of Expedited Notice (hereafter, "O'Shea Aff.").) The memorandum states, in relevant part:

To the extent any prior agreements, policies or practices may have authorized reimbursement of losses, they are no longer in effect. The Company will not deduct cash shortages or other monetary losses from an employee's salary, wages, vacation pay, bonus or other compensation.

(Exh. A to O'Shea Aff.) Defendant further contends that, as part of its policy revision, it reviewed its records to determine which current and former exempt managerial employees may have had their compensation reduced because of cash shortages or other losses. Defendant contends it then reimbursed those employees for the amount of their losses, plus accrued interest at 9%, by sending them reimbursement checks on July 29, 1997, with accompanying correspondence stating that questions should be directed to Jim O'Shea. (O'Shea Aff. at ¶ 5.) Defendant claims that, by taking these actions, it...

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