1. NOHRPS Labor & Employment Law Update March 15, 2012 Orton v. Johnny’s Lunch Franchise, LLC– How to Lose an Employee’s Exemption Status Presented By: Robert S. Gilmore, Esq.

2. A. Orton v. Johnny’s Lunch Franchise Johnny’s Lunch faced significant financial difficulties. To address these difficulties, Johnny’s Lunch stopped paying its executives and then terminated them four months later. John Orton, a former vice president of the company, sought payment for wages owed to him. While employed at Johnny’s Lunch, Orton had been contractually entitled to an annual salary of $125,000.00 and qualified as an exempt employee. He, therefore, had previously been ineligible for overtime pay.

3. A. Orton v. Johnny’s Lunch Franchise, cont. The Sixth Circuit Court of Appeals found that, because Johnny’s Lunch had stopped paying Orton, Orton was no longer classified as an exempt employee under the Fair Labor Standards Act (“FLSA”). As Orton was no longer exempt, he was entitled not only to the amounts owed to him under his former salary, but also to payment for any overtime he may have worked.

4. B. FLSA Exemptions FLSA creates certain exemptions from its general overtime pay requirements (the most common being the administrative, executive, and professional exemptions). In order to qualify as an exempt employee under FLSA, an employee must, among other requirements, be paid a salary of at least $455.00 per week. Further, if an employer makes any improper deductions from an exempt employee’s pay, the employer may eliminate the employee’s exempt status. Johnny’s Lunch, by failing to pay Orton the salary owed to him, destroyed Orton’s exempt employee status, thereby making Orton eligible for overtime pay.

5. C. Key Takeaways By temporarily not paying Orton, Johnny’s Lunch made Orton a non-exempt employee, entitling him to overtime pay. When an employer faces significant cash flow issues, the employer can renegotiate in good faith an employee’s salary and maintain the employee’s exempt status (as long as the $455.00 per week minimum is still met). However, if an employer fails to keep in mind FLSA’s exemption requirements, an employer runs the risk of eliminating an employee’s exempt status. This loss of exemption is not confined to a single employee and the loss of exemption may extend to all other employees with the same job classification working for the same managers responsible for the deduction. Therefore, it is essential to consider legal requirements when making business decisions to avoid inadvertently eliminating the legal protections a business has come to rely on.

6. Robert S. Gilmore Kohrman Jackson & Krantz One Cleveland Center 1375 East Ninth Street, 20 th Fl. Cleveland, OH 44114 Phone: (216) 736-7240 Fax: (216) 621-6536 Email:rsg@kjk.com