Sears Agrees To $5M Unpaid Overtime Class Action Settlement

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Sears Holdings Management Corp. agreed to a $5 million settlement to end a potential class action lawsuit accusing the company of misclassifying hundreds of employees. The plaintiffs allege the company misclassified approximately 700 employees as exempt in order to avoid paying overtime and bonuses.

Various Sears and Kmart retail stores were affected by this unpaid overtime lawsuit, which allege violations of the Fair Labor Standards Act (FLSA). The class action settlement was approved by Northern Illinois U.S. District Judge Milton I. Shadur. The unpaid overtime lawsuit was filed in July 2011 by plaintiff Robert O’Toole, who took action on behalf of himself and other current and former loss prevention managers at Sears and Kmart stores who allegedly were denied overtime compensation.

O’Toole and at least 13 other employees alleged that it was company policy for Sears and Kmart to refuse to pay employees overtime, despite working more than 40 hours a week. As part of the class action settlement, the plaintiffs sought certification for a collective class of employees from Illinois, California, Oregon, Washington, New Jersey, New York and Pennsylvania, in which the defendant allegedly had violated state wage and hour policies. Shadur granted the certification in October 2011, due to the violations alleged under the FLSA.

Shadur reported he was pleased this unpaid overtime settlement was reached, and that both parties seemed satisfied with the terms and conditions with the agreement. Of the $5 million Sears agreed to pay, one third of the cost will go towards the plaintiffs’ legal fees, along with a $5,000 award for each plaintiff named in the class action lawsuit. Following deductions, the settlement will pay the employees an average of approximately $21 per each week they worked during the time period covered by the unpaid overtime settlement, which is an average of $1,800 per worker.

Representatives for Sears report that resolving this matter will allow the company to focus its energy and resources on serving customers. The company denied any wrongdoing, but said it chose to settle the class action lawsuit to avoid unnecessary complications of prolonged litigation.

The Sears Unpaid Overtime Class Action Lawsuit is O’Toole v. Sears Holdings Management Corp., Case No. 1:11-cv-04611, in the U.S. District Court of Northern Illinois.

Overview of Unpaid Overtime

The Fair Labor Standards Act (FLSA) requires that all nonexempt employees be compensated at a rate of one and half times their regular base salary for any hours worked exceeding 40 hours in a single workweek. If an employee feels that they have been unfairly paid or improperly compensated for their overtime, they can pursue legal action if their employer’s human resources department is unable to resolve the matter. Unpaid overtime lawsuits assert that misclassifying employees as exempt from overtime is one of the most common violations employers have been found to commit.

A permanent exempt employee must make over a certain level of income, must be paid on a salary basis rather than an hourly one, and must have a certain level of authority over other employees. With those provisions, exempt employees are not eligible for overtime pay. Examples of exempt employees include: managers, contract employees, and outside sales representatives. However, if a management employee is kept on an hourly pay-rate and are asked to perform duties of lower employees, then they could be eligible for overtime benefits.

Join a Free Unpaid Overtime, Wage & Hour Class Action Lawsuit Investigation

If you were forced to work off the clock or without overtime pay in California within the past 2 to 3 years, you have rights – and you don’t have to take on the company alone. See if you qualify to take legal action now.