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Marx v. Friendly Ice Cream Corp.

August 31, 2005


On appeal from Superior Court of New Jersey, Law Division, Bergen County, L-6874-02.

The opinion of the court was delivered by: Grall, J.A.D.



Submitted March 15, 2005

Before Judges Skillman, Grall and Gilroy.

Plaintiffs appeal following a non-jury trial in this action to recover overtime pay pursuant to N.J.S.A. 34:11-56a4 and N.J.S.A. 34:11-56a25.*fn1 Employers are not obligated to pay overtime to workers who serve in an "executive capacity," N.J.S.A. 34:11-56a4, and this case requires us to consider the scope of the exemption for "executives" that is defined and delimited in N.J.A.C. 12:56-7.1. We conclude that the trial court's decision is supported by adequate evidence and consistent with N.J.A.C. 12:56-7.1.

Plaintiffs Iyad Khawaja, Samer Abualouf and Joseph C. Limoli are general managers of restaurants owned by defendant Friendly Ice Cream Corporation (FICC).*fn2 They claim that the trial court erred in concluding that they are ineligible for overtime because they are employed in an "executive capacity," within the meaning of N.J.S.A. 34:56a4 and N.J.A.C. 12:56-7.1.

Plaintiff Ibrahim Abushawar is an assistant manager employed by FICC. The issue he raises on appeal is unrelated to the issue raised by the other plaintiffs. Abushawar's claim for overtime was dismissed on FICC's motion for summary judgment, and he does not challenge that ruling. Abushawar appeals from an order granting FICC's motion for costs and fees pursuant to R. 4:58-3. We affirm that order.

In parts I-IV of this decision, we address the evidence and law relevant to the overtime claim raised by the plaintiffs who are general managers.*fn3 We address Abushawar's distinct claim in part V of this decision.


FICC owns and franchises the restaurants known as "Friendly's." Each restaurant does three types of business --sale of prepackaged ice cream products, take-out service, and restaurant service. Uniform quality of products and service and profitability throughout the chain of restaurants are important to FICC. The corporate goal is to develop consistency to the point that customers expect that they will get specific food, prepared and served in a specific way whenever they go to a Friendly's restaurant. To that end, FICC sets menus, prices, and specific procedures designed to ensure courteous and prompt service of quality food and prevent waste through spoilage, oversized-portions and theft. To promote uniformity, FICC has developed manuals and check lists for daily, weekly and monthly tasks in its restaurants. Every Friendly's restaurant has one general manager who has overall responsibility for management of the facility, supervision of the staff and implementation of all FICC policies and procedures.

Abualouf was the general manager of defendant's Ramsey restaurant from 1999 to 2001, and Limoli managed the Bloomfield restaurant between March 2001 and May 2002. Khawaja was promoted to the position of general manager in 1996, and at the time of trial he was working as the general manager of the Bloomfield restaurant. All three plaintiffs had a minimum of eighteen employees on staff at all relevant times. FICC policies require a minimum of three employees in attendance during hours of operation.

The starting salary for a general manager is $40,000 per year and the maximum salary is $65,000. A fifty-hour workweek is expected, and bonuses are available based upon the performance of staff and profitability of the restaurant. When the general manager is not present, either the assistant manager or guest service supervisor assumes the role of the general manager, but the general manager retains responsibility for the correct and profitable operation of the restaurant, and the general manager is expected to review the management work done in his or her absence.

FICC pays its assistant managers at an hourly rate of $13.39 per hour, and they receive overtime pay for any hours over forty per week. Guest service supervisors, cooks, and servers are paid less than assistant managers and are also eligible for overtime. Each general manager reports to a district manager who visits the district's restaurants at his or her discretion and when needed.

General managers hire, train, supervise, evaluate and schedule hours for members of the restaurant staff. They have the authority to fire staff members in accordance with FICC's progressive discipline policy. Approval of the district manager is required for termination of an assistant manager or guest services supervisor, but the general manager's recommendation is generally followed.

General managers are also responsible for ordering the food and supplies, determining the quantity of perishable food to ready in advance of each shift, and ensuring that the various stations in the restaurants are properly equipped before each shift. They pay the restaurant's bills, analyze profit and loss statements and prepare or oversee the preparation of payroll.

The general manager must enforce FICC's waste and theft prevention procedures by: locking the kitchen door at all times; checking discarded containers to avoid waste; monitoring portion size; auditing customer checks to ensure proper charging; counseling servers when a customer leaves without paying; and charging employees for food they consume.

Oversight of maintenance of the restaurant facility is left to the general managers. Parking lots, tables and work stations must be kept clean. Appliances must be clean and operable.

The general managers must ensure the quality of food and service. They are expected to prevent service of food that does not meet standards of quality and appearance. Meals or desserts that are substandard are to be discarded and reported as waste. Food supplies must be dated to avoid service of spoiled food. There are time goals for serving customers, and general managers are expected to "lend a hand" if necessary to relieve a "bottleneck" during peak hours.

General managers are also responsible for sales promotion within the restaurant. They are required to train servers to promote sales by using techniques such as asking customers if they would like to add toppings to ice cream and suggesting purchase of a larger portion or a side dish. FICC sends "mystery guests" to its restaurants: they report to FICC on service and food quality, and FICC uses the reports to identify problems and develop the performance ratings which are used in awarding bonuses.

While plaintiffs describe the general manager's job as one involving constant supervision of staff, they claim that FICC's mandatory menus, prices, detailed procedures and check lists leave no room for their meaningful exercise of discretion. Plaintiffs testified that they work as many as sixty to seventy hours per week and devote only fifteen to twenty percent of that time to managerial responsibilities. On a regular basis, they clean bathrooms and tables, vacuum and mop, defrost, unload food supplies, police the parking lot, and cook and serve food. As plaintiffs see it, they are required to devote their time to work that should be done by their staff because FICC sets the labor component of their budget at an amount too low to permit them to schedule enough workers to get the job done.

Michael Maglioli, former vice president of restaurant operations for FICC, explained the relationship between a restaurant's labor budget and staffing decisions. FICC utilizes a computer program that projects staffing levels based on recent sales. The program is sensitive to the type of sales --prepackaged, take-out or restaurant service -- because the labor required varies depending upon the nature as well as the volume of sales. Maglioli explained that general managers are expected to schedule in accordance with the computer's projection of needs and to exercise their discretion to adjust for external factors the program does not consider -- for example, school holidays that tend to bring increased business. A general manager has the discretion to exceed the labor budget. The budget represents the target for expenditures on labor costs not a ceiling. The budget is a planning tool designed to maintain a positive ratio between costs and profits. Maglioli did not know of one case in which a general manager had been terminated on account of exceeding the projected labor budget and noted that FICC as a whole generally exceeds the labor component of the budget. A general manager's failure to meet the labor budget is not determinative of his or her bonus, but labor costs are relevant to the restaurant's profitability, which is taken into consideration in determining eligibility for bonus.

FICC considers its general managers to be "executives" who are not entitled to overtime pursuant to N.J.S.A. 34:11-56a4. Plaintiffs have not been paid overtime for any of their work as general managers.

On the basis of the foregoing evidence the trial court concluded that plaintiffs were employed in an "executive capacity" and ineligible to claim entitlement to overtime compensation under N.J.S.A. 34:11-56a4 and N.J.A.C. 12:56-7.1.


An employer's obligation to pay overtime wages is a component of New Jersey's minimum wage law (MWL), N.J.S.A. 34:11-56a to -56a30. The MWL was enacted "to establish a minimum wage level for workers in order to safeguard their health, efficiency, and general well-being . . . ." N.J.S.A. 34:11-56a. It is patterned on the federal Fair Labor Standards Act (FLSA), 29 U.S.C.A. §§ 201-219. Both the FLSA and the MWL require an employer to pay an employee who works more than forty hours per week at a rate of one-and-one half times the employee's regular hourly rate for every hour after the fortieth, unless the employer establishes the right to an exemption from the "overtime" obligation based upon the employee's salary, duties and work. N.J.S.A. 34:11-56a4; N.J.A.C. 12:56-7.1 to -7.6; 29 U.S.C.A. § 207; 29 ...

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