What that company did was not legal. One of the requirements for classifying an employee as a "manager" is that they actually manage subordinates as part of their duties. If everyone was an assistant manager, none of them were, and they would have been entitled to overtime. (And the company subject to heinous penalties for labor violations.)
This is where a little bit of knowledge is very dangerous. Companies read a small part of the laws and think it's very simple to reclassify hourly employees to salaried employees. It's not.
And US government units really care about this because among other things, you're not getting paid overtime, and they've not getting their cut in taxes on that.
Is your thesis there really that individuals in the federal government (beyond those at the IRS specifically charged with being concerned with it) are so concerned about tax compliance that it is one of their primary motivations when doing their job?
This is where a little bit of knowledge is very dangerous. Companies read a small part of the laws and think it's very simple to reclassify hourly employees to salaried employees. It's not.