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July 16, 2013

Second Circuit Finds Owner Personally Liable
For Overtime Payments Under FLSA

On July 9, 2013, in Irizarry v. Catsimatidis, 2d Cir., No. 11-4035, the Court of Appeals for the Second Circuit clarified the definition of “employer” for purposes of personal liability under the Fair Labor Standards Act (“FLSA”), and held that John Catsimatidis, the owner, president, and CEO of the Gristede’s supermarket chain, is personally liable as an “employer” for his Gristede’s default on payment under an overtime settlement agreement.

Irizarry v. Catsimatidis

In Irizzarry, current and former employees sued Catsimatidis, two other officers, and Gristede’s, alleging unlawful reduction of hours, failure to pay overtime, improper classification of certain employees as exempt from overtime, and retaliation in violation of the FLSA and the New York Labor Law (“NYLL”).  The U.S. District Court for the Southern District of New York certified a class of 400 employees employed by Gristede’s.  The parties reached a settlement, but Gristede’s defaulted on its payment obligations.  The employees then successfully moved for summary judgment against Catsimatidis individually as an “employer” under the FLSA.

On appeal, the Second Circuit held that a court should evaluate the totality of the circumstances in determining whether to hold an individual personally liable as an “employer” under the FLSA, with particular focus on the individual’s “operational control” over the company’s employees and the “economic reality of the employment relationship.”  While “operational control” requires some degree of individual involvement in employment-related decisions, including “workplace conditions and operations, personnel, or compensation,” it is not necessary for the individual to come directly into contact with employees, their workplaces, or schedules, nor is it necessary that operational control is exercised constantly.  According to the Court, an individual may be personally liable even if not personally complicit in the FLSA violations.  In reviewing the “economic reality,”  a court should consider factors such as whether an individual defendant has the power to hire and fire employees, to supervise and control work schedules and employment conditions, set payment rates, and maintain employment records.

Though the employees presented no evidence that Catsimatidis was responsible for any alleged FLSA violations or directly managed class members, Catsimatidis was held individually liable as an “employer” because “there is no question that Gristede’s was the plaintiffs’ employer, and no question that [Catsimatidis] had functional control over the enterprise as a whole.”  The Court found that Catsimatidis’s actions and responsibilities, especially his “active exercise of overall control over the company, his ultimate responsibility for the plaintiff’s wages, his supervision of managerial employees,” and his actions (such as merchandizing decisions) in individual stores were enough to show “operational control.”  The Second Circuit stated that, although Catsimatidis may have performed these actions “only occasionally,” such actions were not irrelevant.  The court also found that Catsimatidis sufficiently met the “economic reality” test because, in addition to controlling Gristede’s financially, he had the power to hire or fire anyone he chose and had authorized several promotions.  It is worth noting, however, that the Second Circuit recognized that the facts made for a “close case.”

The Court also vacated the grant of summary judgment for plaintiffs regarding their NYLL claims, because they were not discussed by the district court and have not yet been resolved by New York’s highest court.

Takeaway for Employers

The Second Circuit’s decision indicates that an individual may be held personally liable as an “employer” under the FLSA, but a court in each case should perform an in-depth factual inquiry to determine whether the individual exercised sufficient operational or economic control over the employees.  While the standard for individual liability is relatively narrow, senior-level employees may have additional incentive for ensuring that their organization is in compliance with the FLSA.

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If you have any questions regarding the Irizarry decision or on best practices for compliance with the FLSA, please do not hesitate to contact us.