Strauss v. Italian Village Restaurant, Inc.

This case was before the court on the third-party defendants’ motion to dismiss. The defendant, sued for FLSA violations, sought to implead its former attorneys and accountant, on the basis that the faulty legal/accounting advice they rendered resulted in the potential liability at issue in this wage and hour case. While indemnification by the professionals who rendered allegedly bad advice which led to the liability would seem to be a legitimate claim, the court dismissed the claim, because neither of the third-party defendants were alleged to be the plaintiffs’ employer (or joint employers), a prerequisite for the imposition of liability under the FLSA.

Reasoning that the professional consultants at issue were not subject to liability under the FLSA, Illinois state wage and hour laws, or similar counts derived from such statutes, the court explained:

Multiple employers may be held liable under the FLSA when “the facts establish that the employee is employed jointly by two or more employers.” The Supreme Court has held that the determination of whether a party is an employer is based on the “economic reality” of the situation. Courts have considered a variety of factors when making this determination, including the ability to hire or fire the employees, supervision of the employees’ schedules, determination of wages, and the maintenance of employment records. The Seventh Circuit has held that an “employer must exercise control over the working conditions of the employee.”

As these third-party defendants accurately point out, there is nothing in the Italian Villages’s conclusory allegations in these counts that suggests that these defendants could ever be considered “employers” within the meaning of the FLSA. There are no allegations that these third-party defendants had any control over these plaintiffs’ working conditions as the case law require; that they could hire, fire or manage them. Nor could there be. These firms were hired by the Italian Village to negotiate the employment contracts and to manage employee payroll. Their work in this respect was controlled by the Italian Village. Regardless of how much The Italian Village chose to rely on the advice and counsel of their third-party contractors with respect to these issues, there is no authority that the Court could find that supports the argument that the Italian Village’s reliance on these firms’ transforms these into “employers” under the FLSA.

Essentially the Italian Village is asking the Court to by-pass the statutory scheme set forth in the FLSA and shift responsibility for compliance with the FLSA from itself, the employer, to third-party consultants which it paid for services rendered. But nothing in the FLSA suggests that the Italian Village’s alleged “reasonable reliance” on its consultants can shift compliance with the law on to them as well. Moreover, there is ample authority that holds that the FLSA precludes all such potential blame-shifting and bars third-party actions for contribution and indemnity using any tort theories.

The Italian Village’s response to this raft of authority is that it is directed only at attempts by employers to shift liability to certain key employees, not to third parties like the accountants and attorneys sued here. Actually this is not correct. In Chao v. St. Louis Internal Medicine, the court held that an accounting firm could not be sued as a third-party defendant in an FSLA case under a tort theory. But even if this case did not so hold, this Court can see no real distinction between efforts to shift liability to employees, which is prohibited by the case law, and the Italian Village’s efforts to shift liability to their third-party consultants. Either scenario is barred by the FLSA’s express language that liability for compliance rests with the employer and the employer only so that the statute’s mandates are not diluted.

Click Strauss v. Italian Village Restaurant, Inc. to read the entire Memorandum Opinion and Order.