Oct. 6 – Hannaford Supermarkets, one of Maine’s largest private employers, announced it will pay hundreds of mid-level executives for previously unpaid overtime.
The company claims the move is intended to increase employee satisfaction, retention and recruitment amid a labor shortage that has many people working overtime.
But some affected workers may see little change – or even a pay cut – because they have to work 45 hours a week to earn the same salary they did before age 40.
The change follows recent federal lawsuits accusing Hannaford of overtime violations, including one filed Wednesday in Maine that company officials declined to discuss for this story. The company also says the shift in overtime policy has nothing to do with the Biden administration’s ongoing efforts to expand overtime pay requirements for middle managers.
Hannaford has notified department managers, evening managers and associate relations managers that they will be reclassified from overtime exempt salaried employees to non-exempt salaried employees beginning Sunday.
“The affected managers will now be paid for every hour they work,” Hannaford spokesperson Caitlin Cortelyou said. “They are paid time and a half for all hours worked over 40 hours per week.”
The responsibilities of the affected managers will not change and they will continue to be eligible for all benefits, including annual performance bonuses, Cortelyou said.
But while overtime is not mandatory, she says, managers will see a pay cut if they work fewer than 45 hours a week — a move that is legal as long as their base pay meets minimum wage requirements.
“To earn the same annual salary, employees will have to work 45 hours per week,” Cortelyou said in a statement. “Affected employees are not and will not be required to work more than 40 hours per week. Our stores have always supported flexible working hours and will continue to do so.”
The shift comes as the Biden administration raises the salary threshold needed to exempt workers from federal overtime requirements. It also addresses a labor shortage that has left many employers struggling to fill vacancies and many employees working more than 40 hours a week.
After a July increase, managers earning an annual salary of more than $43,888 will not have to be paid overtime, but managers earning less will have to be compensated for overtime at 1.5 times their hourly rate, the U.S. Department of Labor said. That threshold will be increased again in January.
RELATED LAWSUIT FILED
As Hannaford moves to compensate middle managers for overtime they worked, a former Hannaford bakery manager in Lewiston filed a lawsuit Wednesday in U.S. District Court in Portland.
The complaint from Tasha Vye of Lewiston accuses Hannaford of violating overtime rules of the federal Fair Labor Standards Act and requests certification as a class action to include all Hannaford employees in similar positions.
It is seeking reimbursement for all unpaid overtime Vye worked between April 2021 and September 2022, and for other employees who may join the lawsuit. Vye’s lawyers have declined requests for interviews.
Cortelyou said Hannaford had still not been formally notified of the complaint as of Friday and declined to comment on the case.
The lawsuit alleges that Hannaford intentionally misclassified certain employees as managers who were exempt from overtime pay, even though they often performed the same work as regular employees who were eligible for overtime pay.
It notes that Hannaford recently “announced that it would reclassify (certain managers) to non-exempt overtime-eligible positions within the coming weeks.”
It points to a 2021 class action suit filed in U.S. District Court in Massachusetts that brought similar charges against the company.
Hannaford settled that case last year for $1 million, including $350,000 for attorneys’ fees and more than $600,000 for affected employees in that state, according to the final settlement order filed in February.
Tackling STAFF SHORTAGE
The salary reclassification that takes effect Sunday will affect about 4%, or 1,040, of Hannaford’s 26,000 employees at 189 stores in Maine, New Hampshire, Vermont and New York, Cortelyou said. That includes about 380 of the company’s 9,500 employees at 68 stores in Maine. The affected employees are not union members.
Like many companies, Hannaford has faced staffing issues in recent years. Many employees in the affected positions have routinely worked more than 40 hours in a workweek, but they have not been paid for overtime, she said. As a result, filling these positions has been an ongoing challenge.
“They now get paid for every hour worked,” she said. “This change is the direct result of feedback from employees who prefer to be paid based on the hours they work. This new model allows us to remain competitive in a challenging recruitment market while giving our employees what they need. they want and deserve.”
Several Hannaford employees contacted at various stores declined to be included in this report, but affected managers expressed concern, support and ambivalence about the change when interviewed for this story and in online forums.
The Biden administration has expanded overtime protections for millions of lower-wage workers, raising the salary threshold for overtime-exempt positions from $35,568 to $43,888 on July 1. A second increase to $58,656 will take effect on January 1, with updates to follow every three years.
The new federal rule follows a 2023 study that found companies were increasingly handing out management titles to avoid paying overtime, especially in the hospitality and retail industries.
‘Too Many Managers’ by professors at Harvard Business School and the University of Texas at Dallas shows that the number of managers grew by 47% between 2010 and 2021, from 6 million to almost 9 million. That’s five times more than all other workers, whose numbers grew just 9%, from 121 million to 132 million, according to federal labor statistics.
The researchers found that handing out more management titles helped companies avoid about $4 billion in overtime per year, with an average loss of $3,194 per employee or 13.5% of their total salary.
CHANGING LEADERSHIP STRUCTURE
Employers have a range of options to meet the new thresholds for exempt overtime, according to the federal Labor Department.
They can increase salaries so that employees maintain their exempt status; pay one and a half hours for any overtime; reduce or eliminate overtime; or reduce base salaries to compensate for overtime, as long as base wages still meet minimum wage requirements.
Hannaford apparently chose the latter, although Cortelyou said the company’s salary change has nothing to do with the Biden administration’s efforts.
“This change is the result of hard work and thinking about what is good for our employees and our company,” said Cortelyou. “Hannaford continually evaluates its compensation practices to remain competitive and many factors have been considered, including feedback from employees who prefer to be paid based on the hours they work.”
Hannaford’s retail leadership structure was unique in the industry and frequently presented challenges in filling open positions, Cortelyou said. The change reflects industry best practices and positions Hannaford to attract and retain employees in a competitive environment, she said.
A CHANGE THAT IS IMPORTANT
What Hannaford does matters in Maine’s labor landscape. Hannaford was founded in Portland in 1883 and is headquartered in Scarborough. Maine’s 9,500 employees make Hannaford the state’s second-largest private employer, behind MaineHealth, which has more than 21,000 employees, state data show.
It’s not surprising that Hannaford took this action amid the Biden rule change, said Marc Cryer, an employment lawyer and director of the Bureau of Labor Education at the University of Maine.
“I fully expected this to happen,” Cryer said. “They rearrange things so that employees are forced to work more for the same pay. These are not union employees, so the employer can basically adjust their pay as long as it is above the minimum wage.”
Still, Cryer wonders whether Biden’s raise will go unchallenged in court, especially the upcoming jump to $58,656 in January.
He noted that a 2017 court decision struck down an Obama-era rule that sought to raise the threshold for overtime-exempt positions to about $47,476 and update it every three years. The Texas judge in that case said the salary threshold was too high.
The Biden rule followed a more modest increase in 2019 from $23,660 to $35,568 by the Trump administration.
“But whether the January increase will survive a lawsuit remains to be seen,” Cryer said.
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