“Employers” Are Responsible For Unpaid Wages
When an employee sues for unpaid wages, one of the most important initial considerations is deciding which parties are responsible for an employee's unpaid wages, and who will therefore be “on the hook” if the employee prevails. The employer business is the first obvious choice. But given that the business's finances might be marginal, or that the business might shut down, it makes sense to go after the owners and related parties on an individual basis, if possible, in order to reach assets held those persons. The law accommodates this by establishing a wide definition of “employers” who are liable for unpaid wages.
The federal minimum wage and overtime statute, the Fair Labor Standards Practices Act (“FLSA”), allows an employee to sue any “employer” who violates its minimum wage and overtime mandates. 29 U.S.C. § 216(b). “Employer” includes not only the employer for whom the employee directly works but also “any person acting directly or indirectly in the interests of an employer in relation to an employee.” 29 U.S.C. § 203(d). There is circularity, however, because the term “employer” is not itself defined in the statute itself.
Operational Control Is the Key Concept
Given this ambiguity, Courts have focused on the concept of operational control for determining “employer” status, as evidenced by (1) the power to hire or fire employees, (2) supervision or control of employees' work schedules or conditions of employment, (3) determining the rate and method of employment, and (4) maintaining employment records. See Carter v. Dutchess Community College, 735 F.2d 9 (2nd Cir. 1984). The overarching inquiry is whether the alleged employer possessed the power to control the workers in question. For example, the owner of a restaurant who is on premises daily and who determines an employee's schedule and rate of pay is indisputably an “employer” under the FLSA and related laws.
The concept of operational control is wide enough to encompass executives higher up the corporate ladder who might not be an employee's direct manager. In Irizarry v. Catsimatidis, 722 F.3d 99 (2nd Cir. 2013), the Court decided that John Catsimatidis, the chairman and CEO of Gristede's Foods, Inc., could be held personally liable for damages for failure to pay overtime to certain employees. Catsimatidis was in charge of a corporation that owned and operated between 30 and 35 stores in the New York City metro area and had approximately 1700 employees. There was no evidence that Catsimatidis was personally responsible for the wage violations—or even that he directly managed or otherwise interacted with the plaintiffs.
The Court, however, focused on the fact that Catsimatidis had functional control over the enterprise as a whole, and was active in running Gristedes, including contact with individual stores, employees, vendors, and customers. He was much more operationally engaged than a symbolic head of an organization, as he had urged. Catsimatidis, though not the plaintiff's individual manager, was involved in hiring managerial employees, and he controlled the Gristedes finances. With this involvement, “[h]is decision affected not only Gristede's bottom line but individual stores, and the personnel an products therein,” Irizarry, supra, at 116, and thus Catsimatidis was held to be an “employer” under the FLSA.
Similar reasoning was applied in Lamonica v. Safe Hurricane Shutters, Inc., 711 F.3d 1299 (11th Cir. 2013) to conclude that two directors, who were not officers of the company, were liable under the FLSA. The Court first noted that past decisions did not limit personal liability to officers. Because customary roles (e.g., that a company's directors are not involved in operations) are not always followed, an individual's title does not by itself establish or bar her liability for wage violations under the FLSA. Lamonica, supra, at 1310. Each of the two directors owned about 22.5% of the company, a percentage substantial enough to suggest that the individuals had control over the Company's financial affairs. The directors also argued that they only worked part time, and were not present at the company every day. The Court pointed out, however, that when the company experienced financial difficulties, one of them promised the workers that he would try to fix the issue so that they would get paid, and the other used some of his own personal funds to help the company satisfy its payroll obligations. Together with their large ownership percentages, this level of involvement was sufficient to support the jury's finding that they were “employers” and hence liable for wage violations.
Individuals Who Do Not Exercise Sufficient Control Are Not “Employers”
Of course, there are limits to who qualifies as an “employer.” In Loo v. IME Restaurant, Inc. (E.D.N.Y. 2018), the questions was whether one Ms. Ma, who was the live-in girlfriend of the manager of the restaurant at issue and who also worked as the cashier at the restaurant, qualified as an employer under the FLSA and New York Labor law. According to the plaintiff, Ms. Ma was an employer because: 1) she was in the restaurant every day, 2) she directed plaintiffs to clean up the restaurant, 3) she authorized plaintiffs to take sick days, and 4) the plaintiffs thought of her as a boss and referred to her as “lady boss.” The Court disagreed.
Ms. Ma's daily presence at the restaurant revealed nothing about her level of authority. The fact Ms. Ma told plaintiffs to clean up was merely directing employees to carry out tasks related to customer service, and Ms. Ma would not become an employer unless she held an integral role in the company's operations, or set work policies or schedules. The fact that plaintiffs subjectively considered Ms. Ma to be their boss did not demonstrate that she was in fact their boss. Finally, authorizing plaintiffs to take sick days was more akin to making one-off ad hoc adjustments rather than representing authority over the employees' extended terms of employment.
Investors and Absentee Owners Are Likely Not “Employers”
In sum, the first step in getting individual owners "on the hook" is to identify those persons who qualify as "employers" under the wage statutes. Even with the expansive definition of “employer,” however, it is clear that certain individuals without operational control will not be liable. An investor without any operational involvement is most likely not “employer.” Does this mean that an employee has no recourse if the business shuts down and the main owner/manager has no money? Not necessarily. New York has implemented other statutory mechanisms to hold the 10 largest shareholders of a corporation or limited liability company liable for unpaid wages, provided that the employee satisfies a number of hurdles. These will be discussed at length in a future post.
Braverman Law PC regularly counsels employees on wage and hour issues. Attorney Adam Braverman knows who may be liable for unpaid wages and how to maximize recovery. To schedule a consultation, please call (212) 206-8166 or contact the firm online today.