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Court Finds Hotel Sales Managers Exempt From Overtime Requirements

  • May 1, 2000

The U. S. District Court for the Southern District of Florida recently ruled that sales managers of a national hotel chain are not entitled to overtime compensation under the Fair Labor Standards Act. In that case, several sales managers brought a collective action claiming the hotel violated the FLSA by failing to compensate them at overtime rates for hours worked in excess of 40 in a workweek. The hotel contended the sales managers were administrative employees and, therefore, exempt from the FLSA's overtime requirements.

The sales managers argued they were "production" employees hired to generate sales of the hotel's principal product, i.e., guest and meeting room space, food and beverage, etc. In advancing this argument, they noted that regulations interpreting the FLSA draw a distinction between administrative work on the one hand, and "production" work or sales in a "retail or service establishment" on the other. Rejecting the sales managers' claim they were "production" employees, the court refused to follow a 1998 Department of Labor Opinion Letter taking the position that the activities of sales and catering managers of a large convention hotel constituted "production," rather than exempt administrative work. The court agreed that the Opinion Letter was written in response to a different set of facts. In this case, the sales managers supervised other employees (sales assistants); actively managed the hotel's sales efforts; and engaged in sales promotion and marketing activity that was not merely "incidental" to their sales work for existing accounts, but rather was aimed at promoting and increasing the hotel's sales revenue.

The court also rejected the sales managers' alternative argument that their duties involved sales in a "retail or service establishment." To establish the hotel was a "retail or service establishment," they had to show that, 1) the hotel is engaged in the making of sales of goods or services; 2), 75% of the hotel's sales of goods or services, or both, must be recognized as retail in the industry; and, 3), not over 25% of its sales of goods or services, or both, may be sales for resale. The sales managers failed to establish all three elements of the test, and the court rejected their claim. Instead, the court concluded the hotel met its burden of proving each element of the administrative exemption. First, the sales managers were paid on a salary basis and earned more than $250.00 a week. Second, their primary duty involved "office or non-manual work directly related to management policies or general business operations" of the hotel. Third, their duties required the exercise of "discretion and independent judgment." Accordingly, the court entered summary judgment in favor of the hotel.

Editor's Note

The court's decision is significant for several reasons. First, it provides long awaited guidance for the hotel and other industries regarding the proper overtime classification of sales employees. Now there is some judicial authority on the type of sales duties that constitutes exempt, administrative activity. Prior to this decision, the only guidance came from the DOL Opinion Letter, which concluded the activities of sales and catering employees at a certain convention hotel were non-exempt.

Second, the decision might provide employers with a good faith defense to liquidated damage claims in the event their pay practices are challenged by similarly situated sales employees.

Third, the decision makes clear the proper classification of sales managers is very fact specific. Because the actual duties of sales managers vary from hotel to hotel, and sometimes even within the same hotel, one sales manager might be exempt, while another may not. A thorough analysis of each manager's duties and overtime classification is recommended because improper classification could result in a costly and time consuming class action by similarly situated employees. Remember, industry or past custom and practice will not insulate employers from liability under the FLSA.

©2000 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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