The Eleventh Circuit Court of Appeals said that the managers, who were routinely expected to put in shifts totally 60-70 hour per week, were wrongly treated as executive employees exempt from OT.

According to the appeals court, the managers were non-exempt for three main reasons:

1. They spent 80-90% of their time performing non-exempt labor (running cash registers, stocking shelves, etc.)
2. Non-exempt tasks were considered an “essential” part of the managers’ jobs, as opposed to “incidental.”
3. Managers had relatively little freedom. Instead, district managers handled most managerial decisions, such as pricing, choosing inventory, etc.
4. The average manager’s “exempt” salary was barely more than the average assistant manager’s salary.

Cite: Morgan v. Family Dollar Stores, Inc.; 11th Circuit Ct. of Appeals, 12/18/08.

In the case, a woman moved into her boyfriend’s home. She cooked and did light housekeeping for him, but did not contribute to his art business. There was no contract indicating that she would perform any task for pay.

The boyfriend gave her checks totaling $10,500, many marked “wages” in the info line. At the end of the year, he reported them as payments for business services and issued her a 1099-MISC.

When she didn’t include the $10,500 as income, IRS took her to court. But the judge ruled that the payments were actually gifts, since there was no contract, and that whatever tasks she performed were unrelated to his business.

She’s now off the hook for the back taxes.

No word on whether the couple is still together. But we’re betting not.

FedEx is learning an expensive lesson. Several years ago, the company misclassified its drivers as independent contractors (ICs) instead of employees. The feds discovered the error — and the company’s been paying for it ever since.

In 2002, FedEx was ordered to pay the drivers (current and former) $5 million in business expenses. And in 2007, the federal government found the company owed $319 million in back employment taxes and penalties related to the error.

And it’s still not over: The California Superior Court has just ordered the company to pay another $9.1 million to the drivers for job-related expenses. Similar cases are being heard in 40 other states.

Something to think about next time a hiring manager asks if its that big of a deal to just call someone an IC for convenience’s sake.

When Prodantis failed to withhold, USAF sued. 

Bad news for Prodantis: Any employer that fails to follow a garnishment order from a student loan guaranty is liable for the amount of the garnishment — as well as attorney’s fees, costs and possibly punitive damages. 

Even though Prodantis admitted liability, the court ruled that USAF was entitled to $6,300 — almost 10 times the original garnishment amount. 

Rubbing salt in the wound: The court also awarded to USAF pre-judgment interest of $27 and post-judgment interest until it receives full payment. 

The fluctuating workweek method can’t be used to pay any employees who were misclassified as exempt from OT. That’s due to a ruling from a U.S. District Crt. in Texas.

The court ruled that the fluctuating workweek method was adopted for specific situations and doesn’t apply to workers who were wrongly treated as exempt from OT.

Under the FLSA, damages for nonexempt workers who were classified as exempt are assessed at twice the unpaid overtime compensation.

Cite: In re: Texas EZ Pawn FLSA Litigation,

The Supreme Court’s lack of action means you’ll need to do a little more work on certain employee reimbursements.

If a worker (or former worker) sues your company and gets an award of a settlement, the rule’s been pretty clear: Payments for physical injuries aren’t taxed; those for mental or nonphysical injuries are.

But when the other party had mental and physical complaints, it wasn’t always clear how you should treat the payment.

But a precedent-setting case has been wending its way through the courts. And now it’s at the last stop – the U.S. Supreme Court has refused to hear it, so the the final verdict is in — literally.

In the case (Murphy v. IRS, U.S. Supreme Crt., No. 067-802) , a woman sued her former employer for mental pain and anguish and damage to her reputation after she was wrongly fired.

She was awarded a settlement, but because it was expressly for nonphysical injuries, it was taxable.

She took IRS to court, arguing that part of the award was for physical problems. To make her case, she pointed out court-documented ailments she suffered, such as anxiety attacks, teeth grinding and shortness of breath.

But the courts ruled her physical problems were evidence of her mental distress after the firing, not the other way around. Therefore, the award was clearly taxable.

Hopefully, you won’t have to make many payments of this nature, but if you do, you’ll need to get certain key pieces of information, especially the specific reason behind the award or settlement.

Otherwise, if you accidentally tax a payment that should be exempt (or that the other party thinks should be exempt) you run the risk of complicating a situation that’s already full of ill-will.