Court Rules That Owner Of Business Can Be Held Personally Liable For FLSA Violations Even If He Was Not Involved In Alleged FLSA Violations

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In Irizarry v. Catsimatidis, the Second Circuit Court of Appeals recently ruled that the owner of a supermarket chain with over 1700 employees could be held personally liable for his company’s alleged FLSA violations. Specifically, a class of employees of the supermarket chain alleged that they were improperly classified as exempt employees and, as a result, they were not paid overtime in accordance with the Fair Labor Standards Act (FLSA) and New York law. The employees also alleged they were retaliated against for engaging in protected activity under the FLSA. The Appeals Court, adopting what it termed the "economic reality test," determined that the owner qualified as an "employer" for purposes of the FLSA because he had operational control of the business, including the hiring and firing of managers and general oversight over the business. The Court reached this conclusion even though the owner had no knowledge nor any input into any of the decisions that gave rise to the alleged FLSA violations. Thus, the Appeals Court held that the employees could hold him personally liable for the alleged FLSA violations in question, which means they could place a lien against his personal assets if they obtained a judgment, and he failed to satisfy the judgment. Moreover, while the case before the Appeals Court concerned an owner of a business, the court’s analysis strongly suggests that the same principles it employed in reaching its conclusion could be applied to managerial employees below the rank of business owner. For these reasons – as well as the additional reason that insurance policies do not generally cover claims alleging unpaid wages – it is critical for employers to rigorously review their wage and hour compliance procedures, particularly the process by which they determine whether or not a particular employee or group of employees are exempt from overtime pay under federal and state law.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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