Some Companies Have Used A Legal Loophole To Avoid Paying Overtime By Giving Workers Exaggerated Job Titles

A new paper published by the National Bureau of Economic Research has found that several employers are exaggerating the job titles of their employees in a bid to avoid compensating them for overtime work. Companies have been taking advantage of a legal loophole within the federal labor law, according to which managers are paid fixed salaries even if they work more than their prescribed hours. Employers are utilizing this loophole by wrongly classifying their employees as managers even when the employees don’t have any managerial responsibilities.

The researchers have found several shocking examples of such misclassification and have highlighted them in their research. These include classifying barbers as “grooming managers”, or classifying front desk attendants as “Directors of First Impressions.”

Additionally, the researchers have also cited a 2008 lawsuit that involved the Family Dollar Store chain. In this case, the store managers who filed the case mentioned that they had to spend between 60 to 90 hours every week on manual labor tasks and rarely engaged in any managerial tasks. However, since they were classified as managers, they did not receive any payment for their overtime work.

The managers won the lawsuit, with an Atlanta court awarding them $35 million in addition to unpaid overtime dues. As per records, the court found that the owed dues for over 1400 store managers were more than $17 million. According to Atlanta overtime lawyers, such instances are quite common all over the country.

The same has been pointed out by the researchers. In fact, close to three-quarters of wage theft violations resulting in fines were regarding overtime-related charges. And such violations are, unfortunately, becoming more common.

The paper, authored by Lauren Cohen, who is an economist at Harvard Business School, and Umit Gurun and N. Bugra Ozel, who are professors of finance at the University of Texas, concluded that the issue is quite widespread.

As per the researchers, there was a 485% increase in the number of online job postings using manager titles between January 2010 and December 2018. These figures are for the roles where the employee is paid at or just above the Federal Labor Standards Act’s salary minimum ($455/week) – which exempts employees from overtime payment. In the words of the researchers, “Our central finding is that there is a systematic, robust, and sharp increase in firms’ use of managerial titles around the federal regulatory threshold that allows them to avoid paying for overtime.”

However, the researchers did not find a similar increase in the number of job postings for roles that did not fall under the overtime rules of the federal government. And this seeks to highlight the fact that job titles are being misclassified by employers to avoid paying employees for their overtime work.

According to the researchers, this “overtime avoidance” is more widespread in workplaces where the employees have few or no bargaining rights. This research comes at a time when the issue of employers classifying their employees as contractors is gaining more visibility – and when the workers’ bargaining power is at its highest in decades due to the persisting labor shortage.

The paper mentions that “In recent decades, several industries have been characterized by concentratedly large firms growing even larger in size and scope – seen, for instance, in their increasing share of overall profits” The researchers add, “While this changing dynamic might be optimal economy-wide, we believe it is important to keep careful track of the balance of power between sides, and the potential transfers between firms and employees which occur as a result.”

The researchers have found that the misclassification of managerial job titles is 52.8% to 91.8% higher in states where the legal system is less protective of the rights of workers. This kind of manipulation by employers is most prevalent in the food, retail, hotel, and janitorial sectors.