In the US retail industry, one of the most pressing issues for luxury brands continues to be appropriately classifying employees as exempt versus nonexempt from overtime payment. It is a particularly challenging issue for multi-state retail employers who must comply with federal, state and local obligations. Misclassifying employees creates significant consequences for brands that do not carefully manage the process.  

Indeed, many wage and hour lawsuits are brought as class or collective actions, so the amounts at stake can be substantial. In the last few years, Comme Des Garçons, Hermès and Louis Vuitton, among others, have each faced class or collective actions related to alleged wage and hour violations. For example, in a pending collective action against Comme Des Garçons in New York, the fashion brand was sued by current and/or former employees who claim the company improperly classified them to avoid paying overtime.

Specifically, retail employees claimed that, while they were designated as ‘sales managers’, ’floor managers’ and ‘assistant floor managers’, and paid a salary, their primary duty was making sales and they did not schedule, interview, hire or fire other employees, oversee projects, dictate operations or perform other tasks aligned with being considered exempt from overtime. Unfortunately for retail employers, these types of wage and hour litigations have become the newest fashion trend in the US.

As most retail employers likely already know, some employees are exempt from being paid overtime based on certain criteria, but determining which employees meet the standard for an exemption under federal and state law can be difficult and requires thorough analysis, particularly when salary thresholds for exemption status are changing almost annually. The misconception some employers have is that simply paying the minimum salary for exemption status alone insulates the employer from liability. This is not the case.

Paying the minimum salary for exempt status alone does not insulate an employer from liability

To be considered an exempt employee (those not entitled to overtime) – typically for those individuals working in bona fide executive, administrative and professional capacities known collectively as the ‘EAP exemption’ under the law – employees must generally: 

1. be paid at or above the minimum salary threshold and 
2. perform certain job duties associated with the exemption.

In other words, it’s not enough for retail employers to simply set employee salaries at or above the minimum salary threshold and end the analysis there. To qualify for an overtime exemption, the minimum salary threshold must be met in addition to the employee meeting the job duties test. Thus, even if the employee is paid on a salary basis at or above the minimum salary threshold, a court or the federal or state Department of Labor (DOL) could find that an employee has been misclassified as exempt because the employee does not perform the requisite job duties for an exemption. Many state laws, such as New York and California, have similar overtime exemption requirements that must be followed to avoid liability.

Under federal law, the minimum salary threshold for the EAP exemption is $684 per week (or $35,568 annualised). While the US DOL issued a rule earlier in 2024 that raised the minimum salary thresholds for overtime exemptions as of July 2024 and would have further increased these thresholds beginning in January 2025, a US District Judge in the Eastern District of Texas recently vacated the DOL rule nationwide. As a result, the minimum salary threshold of $684 per week (or $35,568 annualised) to maintain exempt status was restored as of 15 November 2024.

Retail employers should keep in mind that several states, such as New York and California, maintain their own minimum salary thresholds that far exceed $684 per week. In New York, for instance, the minimum salary thresholds for executive and administrative overtime exemptions are set to increase on 1 January 2025 to $1,237.50 per week (or $64,350 annualised) in New York City and the counties of Nassau, Suffolk and Westchester and to $1,161.65 per week (or $60,405.80 annualised) elsewhere in the state, with further increases set for 1 January 2026. Similarly, in California, minimum salary thresholds for California’s EAP exemption will increase to $1,320 per week (or $68,640 annualised) on 1 January 2025.

Retail employers may also want to consider increasing an exempt employee’s salary beyond the minimum salary threshold to help ensure that the employee will not go from exempt to nonexempt overnight based on annual or other increases to minimum salary thresholds. Further, paying employees at the applicable salary threshold may signal to a court or the DOL that the employer is merely “checking boxes” for overtime exemption compliance.

Regardless, given the law’s fluctuations for minimum salary thresholds across various US jurisdictions, retail employers should stay apprised of applicable federal, state and local wage and hour laws so that appropriate changes can be made to maintain compliance throughout the country.

Maintaining up-to-date or accurate job descriptions helps support exemption status

An employee’s job duties are crucial to the analysis for determining proper classification under wage and hour laws. While it is ultimately the actual job duties that will determine overtime exemption status, job descriptions can be a helpful tool for demonstrating that the employee was expected to perform duties consistent with a particular exemption. While not determinative, job titles, job descriptions and job postings are likely to be considered by a court or the DOL in evaluating the employee’s job duties in misclassification cases such as the recent case filed against Comme Des Garçons.

That’s why retail employers must maintain up-to-date documentation that accurately reflects the employee’s role and job responsibilities. Human resources professionals or other individuals responsible for drafting job descriptions should periodically review and audit exempt employees’ roles to confirm that the job description reflects their job duties and is consistent with the exemption requirements under applicable law. For example, if an assistant store manager is given enhanced personnel responsibilities such as hiring and firing employees, the job description should reflect that important responsibility. Having vague, outdated or inaccurate job descriptions can create problems for retail employers later if they are sued for misclassifying their employees.

Fashion industry retailers may also wish to keep separate job descriptions for different stores to the extent employees have more responsibility in certain locations. In other words, a one-size-fits-all approach might not work for a ‘team leader’ position, especially if that employee works in a flagship store in New York City and performs additional responsibilities than a ‘team leader’ working in a smaller boutique within a department store, or in a smaller US market.

Final Thoughts

As misclassification lawsuits continue to be trendy within the fashion industry, retail employers must ensure they comply with the ever-changing US overtime laws. The beginning of a new year is always a good time to evaluate employee classifications and pay practices to conform to new changes in the law and maintain compliance and best practices. When in doubt, retail employers should consider consulting with employment counsel in making classification decisions to avoid potential wage and hour liability.

Keith Markel is a partner and co-chair of Morrison Cohen’s labour and employment practice. Alana Mildner Smolow is counsel and Kayla West is an associate at Morrison Cohen.