Misclassification and an Overbroad Noncompete
Beacon Street Café has 22 employees. The owner wants to promote a shift lead, Dana, to assistant manager at a $47,000 annual salary and treat her as exempt from overtime. Dana currently earns $23 per hour and works about 50 hours per week. In the proposed role she would open or close the café, schedule 12 employees, order supplies, and handle customer complaints, but she would still spend roughly 60% of her time preparing drinks and serving customers during peak hours. The owner also wants every employee, including baristas, to sign a two-year noncompete covering a 25-mile radius. The café operates in a state that generally enforces noncompetes only when they protect a legitimate business interest and are reasonable in scope.
1. Assess the overtime classification risk. Use the salary and hours in the scenario to estimate the pay difference.
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A salary alone does not make a worker exempt. The employer must satisfy a salary-basis test and a duties test. Dana would schedule employees, order supplies, and handle complaints, but 60% of her time would still be drinks and service. If her primary duty is production or service rather than management, the executive exemption is vulnerable.
Current pay: 40 hours x $23 = $920, plus 10 overtime hours x $34.50 = $345, for $1,265 per week. Annualized, that is $1,265 x 52 = $65,780. The proposed $47,000 salary is $903.85 per week, about $361 less per week, or $18,780 less per year, before any overtime that might be owed. If the café misclassifies her, it could owe back overtime, payroll taxes, and penalties.
The owner should have counsel review the duties, track hours, and either pay hourly or redesign the role so management duties clearly predominate.
2. Evaluate the noncompete for Dana and for baristas.
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A two-year, 25-mile noncompete for baristas is likely overbroad. Baristas generally have little access to trade secrets, pricing strategy, or key customer relationships, and the restriction would limit ordinary employment. Even in a state that enforces reasonable noncompetes, a court would ask whether a legitimate business interest exists and whether time and geography are no broader than necessary.
Dana's assistant manager role might support a narrower restriction if she handles supplier terms, pricing, or key accounts, but a blanket agreement for every employee is risky and may deter hiring. Better tools include confidentiality agreements, nonsolicitation of employees or customers, and short restrictions limited to key roles. Any noncompete should be reviewed by counsel and supported by consideration.
3. Recommend an implementation plan that addresses legal risk and staffing economics.
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First, audit current classifications, time records, and break practices. Second, decide whether Dana will be hourly and nonexempt or whether the role will be redesigned so management duties clearly predominate; if exempt, confirm the salary threshold and duties test with counsel. Third, budget the real cost: the current schedule costs about $65,780 per year, while the $47,000 salary plus potential overtime, turnover, and compliance risk may not produce the expected savings.
Fourth, replace the blanket noncompete with tiered agreements: confidentiality for all staff, nonsolicitation where appropriate, and a narrow noncompete only for key roles with a legitimate interest. Fifth, train managers on timekeeping and no off-clock work. Monitor overtime, turnover, complaints, and discounting or cash-handling exceptions to catch problems early.