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2nd Circuit: CEO can be personally liable for FLSA violations

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in Human Resources,Overtime Labor Laws

by Andrew D. Bobrek, Esq., Bond, Schoeneck & King, Syracuse

Here’s a bit of news you may want to pass on to company executives when explaining why they must comply with the letter and the spirit of the Fair Labor Standards Act (FLSA). Tell them they aren’t just putting company assets at risk, but also their own.

The 2nd Circuit Court of Appeals recently ruled that the chairman and CEO of the New York City supermarket chain Gristedes could be held personally liable for damages arising from FLSA claims brought by his em­­ployees.

Spe­­cifi­­cally, the 2nd Circuit ruled that Gris­­tedes Chairman and CEO John Catsimatidis was an “employer” within the meaning of the FLSA, and could therefore be held jointly and severally liable along with Gris­­tedes for such damages.

Judgment, default, liability

At the time of the case, Gristedes operated about 35 supermarkets in the New York City area, and em­­ployed approximately 1,700 ­workers. In 2004, a group of Gristedes em­­ployees filed a class-action lawsuit for unpaid overtime under the FLSA and New York Labor Law (NYLL).

The employees prevailed on their claims filed in federal district court, and the parties agreed to settle the case.

However, Gristedes defaulted on its payment obligations under the agreement, and the plaintiff em­­ployees moved to hold Cat­­si­­ma­­­­tidis personally liable for the FLSA damages in question. The federal district court granted the motion, ruling that Catsimatidis could be held personally liable. He filed an appeal with the 2nd Circuit.

The 2nd Circuit affirmed the district court’s decision, holding that, in certain circumstances, an individual may be considered an “em­­ployer” under the FLSA and, consequently, held personally liable for violations of the statute.

Further, the court found those circumstances existed with respect to Catsimatidis because, among other things, he: 

  1. Was “active in running Gris­tedes, including contact with individual stores, employees, vendors and customers”
  2. Was ultimately responsible for the employees’ wages and signed their paychecks
  3. Supervised other managerial personnel, such as the CFO and COO of Gristedes.

What makes an employer?

As one might expect in a large corporation employing nearly 2,000 workers, Catsimatidis maintained oversight of Gristedes business at a high level. However, he was not typically involved in day-to-day operations at the supermarkets.

For example, Catsimatidis did not hire or fire rank-and-file employees, did not fix their specific wages or schedules and had only limited interaction with his subordinate managers who handled such matters.

Nevertheless, Catsimatidis’ limited, high-level activity was sufficient to find him liable.

The court also alluded that Cat­si­matidis’ unexercised authority, as chair­­man and CEO, to decide these types of issues may also be an “important and telling factor” in whether he could be held personally liable as an employer under the FLSA.

Further, the 2nd Circuit found that it was irrelevant that Catsi­ma­ti­dis was not alleged to have been personally complicit in the FLSA violations at issue. It said the FLSA would carry an “empty guarantee” to remediate employees for violations if it did not hold an employer’s controlling individuals accountable to the law.

Notably, the 2nd Circuit did not decide whether Catsimatidis could also be held personally liable under the NYLL. Instead, it remanded the case to the original federal district court to decide that issue.

What it means for employers

Startling in its potential implications, the 2nd Circuit’s decision emphasizes the importance of maintaining compliance with the FLSA’s minimum wage and overtime requirements and the risks associated with violations of the statute.

This is not an area in which you can afford to get it wrong. That’s especially true if your company is in an industry currently being targeted by the Department of Labor in its enforcement efforts. These include construction, agriculture, hotel and tourism, garment manufacturing, health care, grocery sales and automobile maintenance and repair.

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Andrew D. Bobrek is a labor and employment law attorney in Bond, Schoeneck & King’s Syracuse office. Contact him at abobrek@bsk.com or (315) 218-8000.

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