Category Archives: Employer

February 16, 2013 · 10:08 am

10th Cir.: Employee Who Performed Work Afterhours for Employer Through His Separate Company Held to be Independent Contractor for Afterhours Work

Barlow v. C.R. England, Inc.

Following an order granting the defendant summary judgment, the plaintiff appealed. As discussed here, the issue before the Tenth Circuit regarding the plaintiff’s FLSA claim, was whether he was properly deemed to be an independent contractor for janitorial work her performed for his employer afterhours, while the same employer deemed him to be an employee for security work he performed during the day. In a decision lacking much by way of reasoning, the Tenth Circuit affirmed the decision of the court below and held that the defendant’s dual classification for the two different types of duties performed was valid.

The Tenth Circuit laid out the pertinent facts as follows:

In February 2005, Barlow began working as a part-time security guard at a Denver maintenance yard operated by England, a large trucking company. Barlow patrolled England’s grounds for about thirty hours a week, from 6:30 P.M. to 5:00 or 6:00 A.M. Friday through Sunday nights. Most of the yard was fenced in, accessible through an automatic overhead gate. Barlow also performed maintenance and ground work to try to reach 40 hours of work per week.

After Barlow had been at England for about a year and a half, he asked the facility’s site manager, John Smith, for extra work. Smith, who had initially hired Barlow, was not satisfied with England’s janitorial contractor at that time, so he asked England’s personnel department about having Barlow take over. Smith was told he could not allow Barlow to work any more hours because the company would have to pay overtime.

To get around this, Smith suggested Barlow create a company England could contract with. Barlow formed E & W Janitorial & Maintenance Services, LLC. Beginning in February 2007, Barlow cleaned for England on Mondays, Wednesdays, and Saturdays, pursuant to an oral agreement with Smith. On a few occasions, his girlfriend, a co-owner of E & W, filled in. England provided his cleaning supplies, but did not require Barlow clean in any particular order. England, the only company for which E & W worked, paid $400 a month for E & W’s services.

Without much reasoning regarding this portion of the plaintiff’s claim, the court held:

We also agree with the district court’s decision to grant summary judgment against Barlow regarding his FLSA claims. Barlow argues that he performed his janitorial work as an employee under the FLSA, and that he was therefore entitled to overtime pay. But applying the “economic realities” test of employee status, we conclude that Barlow was not a statutory employee for purposes of the FLSA.

The “economic realities” test seeks to look past technical, common-law concepts of the master and servant relationship to determine whether, as a matter of economic reality, a worker is dependent on a given employer. Baker v. Flint Engineering & Const . Co., 137 F.3d 1436, 1440 (10th Cir.1998). “The focal point in deciding whether an individual is an employee is whether the individual is economically dependent on the business to which he renders service, or is, as a matter of economic fact, in business for himself.” Doty v. Elias, 733 F.2d 720, 722–23 (10th Cir.1984) (emphasis added) (citations omitted). “In applying the economic reality test, courts generally look at (1) the degree of control exerted by the alleged employer over the worker; (2) the worker’s opportunity for profit or loss; (3) the worker’s investment in the business; (4) the permanence of the working relationship; (5) the degree of skill required to perform the work; and (6) the extent to which the work is an integral part of the alleged employer’s business.” Baker, 137 F.3d at 1440. It also “includes inquiries into whether the alleged employer has the power to hire and fire employees, supervises and controls employee work schedules or conditions of employment, determines the rate and method of payment, and maintains employment records.” Id. “None of the factors alone is dispositive; instead, the court must employ a totality-of-the-circumstances approach.” Id.

Some factors favor Barlow, while other factors favor C.R. England, but, ultimately, we agree with the district court that Barlow was an independent contractor. Barlow and his partner created a licensed, limited liability company in order to provide janitorial services. Cf. Rutherford Food Corp. v. McComb, 331 U .S. 722, 730 (1947) (classifying as employees speciality group of production line workers in part because “[t]he group had no business organization that could or did shift as a unit from one slaughter-house to another”). Barlow kept records for the company, opened a separate bank account, and filed a corporate tax return. The district court also noted Barlow had the “freedom to decide how to accomplish” his tasks, even if the company reviewed the ultimate work product. 816 F.Supp.2d at 1107. Indeed, little in the case indicates the relationship between Barlow and C.R. England materially differed from one the company would have with any other cleaning service except for the fact Barlow also happened to otherwise be an employee. This suggests Barlow was in business for himself as a janitor, and we therefore affirm the district court’s decision to grant summary judgment.

Click Barlow v. C.R. England, Inc. to read the entire decision.

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January 12, 2013 · 10:47 am

E.D.Mo.: Where Common Tip Pool Violations Alleged, Employees of Franchise Stores as Well as Those at Company-Owned Stores Similarly Situated at Stage 1

White v. 14051 Manchester, Inc.

This case was before the court on the plaintiffs’ motion for conditional certification. As discussed here, the plaintiffs sought to facilitate class notice to employees who worked at the franchise locations of the franchisee who employed them, as well as those who worked for “Hotshots” franchisor or company-owned locations. In support of their motion, plaintiffs argued that all tipped employees at all Hotshots locations, regardless of the owner, were required to participate in illegal tip pools whereby they were required to tip out back-of-the-house employees not eligible to participate in a valid tip pool. Rejecting the defendants’ argument that the court should limit the putative class to those tipped employees employed by the franchisee who employed plaintiffs the court explained, that it would be inappropriate to resolve the merits issue regarding which entities employed each putative class member at Stage 1.

Discussing this issue the court opined:

The Supreme Court has noted that whether a relationship is covered by the FLSA turns on the economic realities of the working relationship rather than technical definitions relating to employment. Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961). The FLSA defines “employee” broadly to include “any individual employed by an employer.” 29 U.S.C. § 203(e)(1)(2006). In turn, “employ” is defined as “to suffer or permit to work” 29 U.S.C. § 203(g), and an “employer” is any person “acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). “Thus, based on the language of the statute, an employee is any individual who is permitted to work by one acting directly or indirectly in the interest of an employer.” Helmert v. Butterball, LLC, No. 4:08CV00342, 2010 U.S. Dist. LEXIS 28964, at *6 (E.D.Ark. Mar. 5, 2010); see also Nicholson v. UTi Worldwide, Inc., No. 3:09–cv–722, 2011 U.S. Dist. LEXIS 41886, at *3 (S.D.Ill. Apr. 18, 2011)(conditionally certifying class of “forklift operators employed” by defendant that included workers hired through temporary staffing agencies).

The Court finds that, for purposes of this Motion, Defendants “permitted or suffered to work” all Hotshots employees, even those at the franchise locations. Given the FLSA’s broad definition of the “employee” and its remedial purpose, Defendants’ franchise arrangement demonstrates sufficient “control” for conditional class certification. Moreover, the employment relationship for franchise employees is disputed by the Plaintiffs, and the Court cannot make credibility determinations at this juncture. See Arnold v. DirecTv, Inc., No. 4:10–CV–352–JAR, 2012 U.S. Dist. LEXIS 140777, at *8 (E.D.Mo. Sept. 28, 2012)(“The Court will not make any credibility determinations or findings of fact with respect to contradictory evidence presented by the parties at this initial stage.”).

The Court also finds that the proper class definition is all Hotshots employees who shared in any tip pool. Employees who participated in the tip pool were allegedly victims of the same policy or plan and denied compensation as a result of the tip-pooling arrangement. While the Court acknowledges that distinctions exist among the Hotshot’s teams and locations, Plaintiffs’ affidavits provide enough evidence at this stage to demonstrate employees were similarly situated and subject to a common practice. McCauley, 2010 U.S. Dist. LEXIS 91375, at *12–13 (citing Busler v. Enersys Energy Products, Inc., No. 09–00159, 2009 U.S. Dist. LEXIS 84500, at *9–10, 2009 WL 2998970 at *3 (W.D.Mo. Sep. 16, 2009)); see also Fast v. Applebee’s Intern., Inc., 243 F.R.D. 360, 363–64 (W.D.Mo.2007) (citations omitted) (“To be similarly situated, however, class members need not be identically situated. The ‘similarly situated’ threshold requires only a modest factual showing.”); Schleipfer v. Mitek Corp., No. 1:06CV109, 2007 U.S. Dist. LEXIS 64042, at *9 (E.D.Mo. Aug. 29, 2007)(class members need not be identically situated). “[A]rguments concerning the individualized inquiries required and the merits of Plaintiffs’ claims are inappropriate at this stage of the proceeding and can be raised before the Court at the second, or decertification, stage.” Dominquez v. Minn. Beef Indus., No. 06–1002, 2007 U.S. Dist. LEXIS 61298, at *10 (D.Minn. Aug. 21, 2007)(internal quotation omitted).

Click White v. 14051 Manchester, Inc. to read the entire Memorandum and Order.

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December 24, 2012 · 9:52 am

2 Recent Cases Draw Distinction Between Volunteers and Employees

With the uptick in FLSA case filings in recent years, a previously rarely litigated issue- whether certain types of workers are volunteers or “employees” subject to FLSA coverage- has increasingly come under judicial scrutiny. And, while case law has long interpreted the FLSA in a liberal manner, with the stated purpose of erring on the side of coverage for workers, two recent cases demonstrate that definition is not without its limits. In the first case, the domestic partner/girlfriend of a Domino’s Pizza store manager helped the manager with his management duties, in the hopes that eventually such efforts would lead to the partner’s advancement within the company. In the second case, an alumni for a public high school served as a mentor to students following his graduation from school. As discussed below, in both cases, the courts employed the “economic reality” test, and held that the workers were volunteers as opposed to employees.

Emanuel v. Rolling in the Dough, Inc.

In the first case, the plaintiff- apparently the girlfriend of the general manager of a Domino’s franchise store- assisted her boyfriend in his duties as the general manager. After the boyfriend’s employment with the defendant ceased, the plaintiff sought renumeration for all of the work she had previously performed on behalf of defendants, while he boyfriend had been employed. Interestingly, it appears from the style of the case that the defendants- who denied that the plaintiff was ever their employee- sought to bring a claim for indemnification/contribution against the boyfriend by impleading him as a third-party defendant. Looking at the totality of the circumstances, the court concluded that she was a volunteer and not an employee under the FLSA. Thus, the court granted the defendants’ motion for summary judgment.

Elucidating the relevant facts, the court explained that at some point in 2007, the plaintiff (Emanuel) told her boyfriend that she wanted to work at the store he managed on behalf of the defendants. Apparently, the plaintiff wanted to help with her boyfriend’s effort to become a Domino’s Pizza franchise owner.In response the boyfriend said he’d have to speak to the defendants about Emanuel working at the Elmhurst store. Thereafter, the boyfriend conveyed to Emanuel that defendants “believed your talents can be better utilized somewhere else.” Nonetheless, sometime later, the boyfriend (Shafer) communicated to Emanuel that she could begin working at the Elmhurst store. Significantly, the plaintiff acknowledged that she could not have worked in the store pursuant to the defendants anti-nepotism policy and that defendants would have told her to “get the hell out of my store,” had they known she was performing work in the store.

It was undisputed that neither the defendants, nor plaintiff’s boyfriend or anyone for that matter, ever promised plaintiff any compensation for the work she performed.

Ultimately, the plaintiff’s boyfriend and defendants got into a dispute regarding their agreement about his [plaintiff's boyfriend's] compensation, and as a result both plaintiff and her boyfriend ceased working for defendants. Subsequently, she filed the lawsuit, seeking compensation for the approximately 3 years of work she performed on behalf of defendants (and her boyfriend).

Laying out the elements of the “economic reality” test, the court explained:

Courts look to the totality of the circumstances when determining whether an individual is an “employee” under the FLSA and examine the “economic reality” of the working relationship. See, e.g., Vanskike v. Peters, 974 F.2d 806, 808 (7th Cir.1992). Courts have considered a variety of factors when examining the “economic reality” of a purported employment relationship, though none are dispositive or controlling. Secretary of Lab. v. Lauritzen, 835 F.2d 1529, 1534 (7th Cir.1987). Six commonly applied factors are: (1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers; (4) whether the service rendered requires a special skill; (5) the degree of permanency and duration of the working relationship; and (6) the extent to which the service rendered is an integral part of the alleged employer’s business. Id. at 1534–35.

Rejecting the plaintiff’s contention that she was defendants’ “employee,” the court reasoned:

“Here, plaintiff Emanuel advances an absurd position. Emanuel argues that defendant Lindeman’s repeated statement that he would not pay her to work at the Elmhurst store was not a refusal to hire her as an employee, but an offer for her to work for free. Since Emanuel claims to have worked at the Elmhurst store without compensation and without [defendants] forcibly ejecting her from the store or otherwise preventing her from working, it is her position that an employment relationship impliedly exists.” However, noting the no one ever promised plaintiff compensation and that her work likely violated one or more of defendants corporate policies, the court held it was unreasonable for plaintiff to believe she was actually their employee, rather than a volunteer. Thus, the court granted the defendants’ motion for summary judgment.

Click Emanuel v. Rolling in the Dough, Inc. to read the entire Memorandum Opinion and Order.

Brown v. New York City Dept. of Educ.

In the second case, the plaintiff, Brown, graduated from the New School for Arts and Sciences, a high school that shared space with Banana Kelly. After graduation, Brown maintained ties with Banana Kelly and occasionally came in to visit former teachers. In October 2007, when Plaintiff expressed an interest in mentoring students, the school offered Plaintiff the opportunity to do so at Banana Kelly. Neither Brown nor the school raised the issue of compensation at this time, and neither discussed Brown’s employee status. No one interviewed Brown about his background or qualifications. Thereafter, the plaintiff went to Banana Kelly and continued at the school for more than three years, finally leaving in December 23, 2010, apparently because he was being investigated for inappropriate conduct related to his comments to a freshman student. During his time at the school, with minor exceptions, the plaintiff reported five days a week throughout the academic year, working 7-8 hours per day on a regular basis.

Citing the fact that the plaintiff never submitted to the normal, legal requirements for employment by the Department of Education: application, interview, background check, job classification, and assignment, the court rejected plaintiff’s assertion that he was an employee, because he expected compensation for his services. Although it was undisputed that the defendant told plaintiff that there was not enough money in the budget to pay him, according to the plaintiff, defendant promised that he would attempt to search the budget for the funding.

Again, looking at the “economic realities” and the totality of the facts of the situation, the court held that plaintiff was a volunteer and not an employee, subject to FLSA coverage. Thus, the court granted defendant’s motion for summary judgment.

The court gave the following overview of the analysis applicable to the issue:

Whether one is a volunteer is to be determined “in a common-sense manner, which takes into account the totality of the circumstances surrounding the relationship between the individual providing services and the entity for which the services are provided.” Purdham, 637 F.3d at 428;City of Elmendorf, 388 F.3d at 528; Todaro, 40 F.Supp.2d at 230. Accordingly, courts should review “the objective facts surrounding the services performed to determine whether the totality of the circumstances establish volunteer status, or whether, instead, the facts and circumstances, objectively viewed, are rationally indicative of employee status.” Purdham, 637 F.3d at 428. The court then examined 2 factors to determine whether the plaintiff was an employee or a volunteer. First, the court considered whether Brown performed the tasks at Banana Kelly for “civic, charitable, or humanitarian reasons,” pursuant to 553.101(a).

Looking at this factor, the court reasoned:

One is a volunteer, if motivated by an altruistic sense of civic duty, see Krause, 969 F.Supp. at 276, as opposed to the expectation of compensation, see Rodriguez, 866 F.Supp. at 1019. When the situation is one of mixed motives, “the regulatory definition does not require that the individual be exclusively, or even predominantly, motivated by ‘civic, charitable or humanitarian reasons. Rather, what is required is that the individual must be motivated by civic, charitable or humanitarian reasons, at least in part.”   Purdham, 637 F.3d at 429 (citing Todaro, 40 F.Supp. at 230); see also Benshoff v. City of Virginia Beach, 9 F.Supp.2d 610, 623 (E.D.Va.1998) (finding that firefighters were volunteers when motivated primarily, but not exclusively, by civic, charitable and humanitarian concerns). Here, Brown accepted Jerome’s offer to mentor, in part, because he wanted “[s]omeone … to stand up, and make a change, and show the kids that we do care.” (Welikson Dec. Ex. C, Brown Dep. at 35:21–22.) He felt that the school needed the change because in his experience as a student, “nobody cared” (id. 35:14–17). This motivation remained unchanged as Brown started performing non-mentorship tasks. Brown testified that he helped with lunch duty, dismissals and escorting students despite his displeasure with being asked because he wanted to be a “team player” and that he “want[ed] to help and [he] care[d].” (38:14–39:5.) He felt obligated because he did not want to “let[ ] the school down.” (id. at 150:20–22.) These statements show a continued civic and charitable intent to improve the environment at Banana Kelly. At the same time, Brown testified that he worked because he believed (“hoped”) that money was forthcoming. (Okoronkwo Dec. Ex. 13 Brown Dep. 231:18–19). Accepting Brown’s acknowledgements, the Court turns to whether, in this mixed motive case, Brown acted at least in part, by the proper humanitarian concerns. See Purdham, 637 F.3d at 429. Plaintiff’s testimony shows that his actions at Banana Kelly, had their source, at least in part, in his concern for what would become of students if he did not show up, and was thus properly motivated.

Next the court looked at whether there was a “promise, expectation or receipt of compensation for services rendered.” 29 C.F.R. § 553.101(a). Noting that plaintiff was not compensated, was not offered “under-the-table” compensation, and was not promised compensation, the court concluded that the plaintiff had no reasonable expectation of compensation. Looking at all the circumstances the court concluded that:

There is ample evidence that Brown knew and understood, despite his hopes to the contrary, that he would not be compensated. Brown admitted that he understood that he would not get paid for mentoring. No one led Plaintiff to believe that he would get paid for non-mentoring tasks. Laub testified that he had conversations with Plaintiff in which he relayed to Brown that he was volunteer and intern. Banana Kelly gave him certificates of appreciation that acknowledged his services as an intern and volunteer which Brown accepted without objection. While labels used by the parties do not control the outcome (P. Opp. at 11), the parties’ understanding of their arrangement is a relevant factor in the totality-of-circumstances analysis. See Rodriguez v. Township, 866 F.Supp. 1012, 1020 (S.D.Tex.1994) (declining to hold that the plaintiff was a volunteer in part because both parties understood their relationship as an employment, rather than volunteer, relationship).

Taking all of the circumstances into consideration, the court concluded that the plaintiff was a volunteer.

Click Brown v. New York City Dept. of Educ. to read the entire Opinion and Order.

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December 22, 2012 · 10:13 am

N.D.Ill.: Former Attorney and Accountant Improper Third-Party Defendants in FLSA Case; Non-Employers Not Subject to Liability

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.

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September 24, 2012 · 7:12 am

E.D.Cal.: Plaintiff Could Simultaneously Be Part-Owner of Closely-Held S-Corp. and Its FLSA-Covered Employee

Hess v. Madera Honda Suzuki

This case was before the Court on the defendant’s motion for summary judgment regarding all of plaintiffs’ claims. As discussed here, one of the issues the court was asked to resolve was whether someone can simultaneously be a part-owner of a closely held s-corporation and an employee thereof. The court distinguished the case from one concerning a business structured as a partnership, and held indeed the plaintiff could simultaneously be a part-owner of the defendant and its employee. Thus, the court denied defendant’s motion for summary judgment with regard to her FLSA claim for unpaid wages on this ground.

As relevant to this discussion, the court recited the following facts (following a period of employment where the plaintiff was solely defendant’s employee):

As support for the contention Plaintiff was not their employee, Defendants point to evidence in the record, primarily from Plaintiff’s deposition testimony, establishing the following. After investing $100,000 ($50,000 allocated to stock and $50,000 as a business loan) with her husband, Terry Hess, Plaintiff became a co-owner of Madera Honda Suzuki, controlling 24 percent of the 100,000 shares of common stock originally issued by Harry D. Wilson, Inc. (Terry controlled 25 percent; defendant Robert Wilson controlled 26 percent while his wife, Lisa, controlled 25 percent.) Plaintiff was then elected as a director and chief financial officer of the corporation. Pursuant to their investment, it appears Plaintiff and her husband provided personal guarantees to Central Valley Bank for money presumably borrowed by the company. Plaintiff further stated she and her husband provided personal guarantees to American Honda and Suzuki, presumably to cover debts and obligations that might be incurred by the company through its sale of Honda and Suzuki motorcycles. Plaintiff understood it was possible she might lose some or all of her investment, and that even if the business were successful, it would take some time before it would start showing a profit. Plaintiff further understood that although the shares of stock were split 51 percent/49 percent between the Wilsons and the Hesses, everything else—including profits—would be divided equally (i.e., 50/50 between the Wilsons and the Hesses). According to Plaintiff, the business never made a profit.

Plaintiff testified it was her responsibility to pay bills and that she had authority to pay certain expenses, such as rent and dealership insurance, without consulting the other officers. Plaintiff was authorized to issue payroll checks to herself and others if the company had sufficient funds, and it appears Plaintiff issued a check to herself at least once during her tenure as CFO. At his deposition, Wilson testified he and Plaintiff interviewed prospective employees together and that Plaintiff “had a say in everybody [the company] hired.” Wilson further testified Plaintiff handled employee disciplinary matters “95 percent of the time” and that she was not required to consult with him before terminating an employee. It also appears Plaintiff was afforded special benefits. Plaintiff testified “if [she or Wilson] took days off, since [they] were on salary, [they] would be paid the days.” Other employees also had paid vacation, but only for a limited number of days. The company paid for vehicles and fuel for the Wilsons and the Hesses, whereas other employees did not have a vehicle allowance. Per Wilson, the company paid the cost of health insurance for shareholders, including Plaintiff, whereas it covered only part of the premiums for employees, who had to contribute the rest. All of this evidence, Defendants contend, shows Plaintiff was a co-owner, not an employee.

In light of the above undisputed facts, the defendant argued “that Plaintiff [could not] be considered an employee because Plaintiff assumed significant business risk, had involvement and discretion in the corporate decision-making process and was entitled to benefits not available to Madera Honda Suzuki’s other employees, none of which was consistent with employee status.” However, the court disagreed.

The court distinguished case law that has held that partners of a partnership cannot simultaneously be FLSA employees, in part discussing a case previously discussed here, from the situation before it where the alleged employee had a part-ownership interest in an s-corp. The court explained:

Defendants have provided no authority—and the Court’s research reveals no authority—stating categorically that a co-owner and shareholder of a closely held corporation who works for the corporation in another capacity, as was apparently the case here, cannot also be the corporation’s employee for the purpose of the FLSA. Indeed, case law seems to suggest otherwise. See Goldberg v. Whitaker House Co-op, Inc., 366 U.S. 28, 32, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961) (“There is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship. If members of a trade union bought stock in their corporate employer, they would not cease to be employees within the conception of [the FLSA]. For the corporation would ‘suffer or permit’ them to work whether or not they owned one share of stock or none or many”).

While the court noted similarities between the structures of a partnership and the closely-held s-corp. at issue here, ultimately it reasoned that the differences permitted a co-owner who lacked the ability to use the corporate assets as her own and lacked the ability to use the corporate assets as she thought fit. Further, contrary to the relationship partners have in a partnership where they are primarily investors, the court noted that shareholders such a plaintiff remain economically dependent on the s-corporation and their primary source of income is typically wages earned from the s-corporation:

The fact the company is a closely held corporation is key because shareholders view closely held corporations precisely as a means of acquiring corporate assets through employment: “Unlike the typical shareholder in a publicly held corporation, who may be simply an investor or a speculator and does not desire to assume the responsibilities of management, the shareholder in a close corporation considers himself or herself as a co-owner of the business and wants the privileges and powers that go with ownership. Employment by the corporation is often the shareholder’s principal or sole source of income. Providing employment may have been the principal reason why the shareholder participated in organizing the corporation. Even if shareholders in a close corporation anticipate an ultimate profit from the sale of shares, they usually expect (or perhaps should expect) to receive an immediate return in the form of salaries as officers or employees of the corporation, rather than in the form of dividends on their stock. Earnings of a close corporation are distributed in major part in salaries, bonuses and retirement benefits[.]” Hollis v. Hill, 232 F.3d 460, 467 (5th Cir.2000).

Having determined that part-ownership of an s-corporation does not preclude a finding of an employer-employee relationship under the FLSA, the court held that—taking the facts most favorably for plaintiff, the non-movant—plaintiff could meet the economic reality test and demonstrate that she was an employee subject to FLSA coverage. Thus, the court denied defendant’s motion for summary judgment on this ground.

Click Hess v. Madera Honda Suzuki to read the entire Order re: Motion for Summary Judgment or Summary Adjudication.

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June 6, 2012 · 8:21 am

2 Recent Decisions Discuss Successor Liability in FLSA Cases

When an employee is employed by a company, as long as that company is an enterprise covered by the FLSA, it is subject to the wage and hour requirements of the FLSA.  But what about when the company alleged to have violated the FLSA changes hands before its employees have initiated a lawsuit or claim for their unpaid wages.  Does the successor company, who acquires the assets of the alleged violator have successor liability under the FLSA?  Two recent decisions discuss this very issue. However, given the factually intensive nature of the inquiry, as discussed below, both courts denied the respective defendants’ motions based on issues of fact.

Paschal v. Child Development Inc.

In the first case, Paschal v. Child Development, Inc., the plaintiffs’ subsequent employer (“CDIHS”) sought judgment as a matter of law at the pleading stage of the case, asserting that it could not be plaintiffs’ employer under the FLSA, because it was not in existence when the plaintiffs’ claims arose. In denying the subsequent employer’s motion as premature, the court explained the parameters for successor liability in FLSA cases.

The court explained that the test for liability of a successor company under the FLSA requires the examination of several elements:

The doctrine of successor liability has [ ] been recognized to apply to FLSA violations.” The question of successor liability is difficult based on the “myriad [of] factual circumstances and legal contexts in which it can arise;” therefore, the court must give emphasis on the facts of each case as it arises. A finding of successorship involves two essential inquiries: (1) whether there is continuity of the business; and (2) did the successor know of the violations at the time it took over the business. A court may also consider whether: (a) the same plant is being used; (b) the employees are the same; (c) the same jobs exist; (d) the supervisors are the same; (e) the same equipment and methods of production are being used; and (f) the same services are being offered.

Applying these factors, the court addressed the parties respective positions:

In their Reply, CDIHS argues that Plaintiffs failed to plead any facts that put them in the category of being a successor in interest. Specifically, they argue that “[t]he business was not transferred, nor were employees or property transferred. There was no purchase of the business in any sense.” However, Defendants fail to address the two essential questions of whether they had notice of the violations and whether there was continuity of the business… Plaintiffs argue that “[s]ubstantial continuity of operations between CDI and CDIHS is a given.” They point to CDIHS’s website that indicates all of the efforts on CDIHS’s behalf to maintain the continuity of program. They also argue that based on CDIHS’s intervention, they were “aware of CDI’s potential liability for FLSA and ERISA violations.”

Ultimately, the court denied CDIHS’ motion as premature.

Click Paschal v. Child Development Inc. to read the entire Order Denying Motion to Dismiss.

Battino v. Cornelia Fifth Ave., LLC

In the second case, Battino v. Cornelia Fifth Ave., LLC, a different court applied a similar test to that discussed above. However, because the Battino case was before the court on the defendants’ motion for summary judgment (rather than a motion to dismiss at the pleading stage), it provides a greater insight into how courts apply the multi-factor test in ascertaining whether there is successor liability under the FLSA. In Battino, the court denied the subsequent employers’ motion for summary judgment holding that issues of fact precluded a finding in the defendants’ favor on this issue. As discussed here, the court primarily focused its inquiry on the second factor enunciated above, whether the successor knew of the violations at the time it took over the business.

Regarding the specific test applied by the Battino court, the court explained:

The substantial continuity test in the labor relations context looks to “whether the new company has acquired substantial assets of its predecessor and continued, without interruption or substantial change, the predecessor’s business operations.” Fall River, 482 U.S. at 43 (citation and quotation marks omitted). Courts applying this test typically look at the nine factors enunciated by the Sixth Circuit in the Title VII discrimination context in EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1094 (6th Cir.1974): (1) whether the successor company had notice of the charge or pending lawsuit prior to acquiring the business or assets of the predecessor; (2) the ability of the predecessor to provide relief; (3) whether there has been a substantial continuity of business operations; (4) whether the new employer uses the same plant; (5) whether he uses the same or substantially the same work force; (6) whether he uses the same or substantially the same supervisory personnel; (7) whether the same jobs exist under substantially the same working conditions; (8) whether he uses the same machinery, equipment, and methods of production; and (9) whether he produces the same product. Musikiwamba, 760 F.2d at 750 (paraphrasing MacMillan Bloedel ). “No one factor is controlling, and it is not necessary that each factor be met to find successor liability.” EEOC v. Barney Skanska Const. Co., 99 Civ.2001, 2000 WL 1617008, at *2 (S .D.N.Y. Oct. 27, 2000) (citation omitted).

In denying the defendants’ motion, the court held that there were issues of fact precluding same, because the successor company could not be said to be an “innocent purchaser,” inasmuch as one of its principals was also a principal in the prior company.

The court explained:

This is not a case of an “innocent purchaser” who “exercised due diligence and failed to uncover evidence” of any potential liability. Musikiwamba, 760 F.2d at 750, 752. Rather, SCFAL was fully aware of the potential liabilities to the unpaid employees and attempted to negotiate the APA accordingly. Thus, the Court is unable to conclude as a matter of law that Canizales cannot be liable as a successor to Cornelia Fifth because of a lack of notice of the claim to SCFAL.

Click Battino v. Cornelia Fifth Ave., LLC to read the entire Opinion and Order.

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May 24, 2012 · 8:18 am

E.D.Wisc.: Plaintiff Who Helped Set Up Defendants’ Business Was an Employee Subject to FLSA Coverage, Not a Volunteer

Okoro v. Pyramid 4 Aegis

This case was before the Court on the plaintiff’s motion for summary judgment on a variety of issues. As discussed here, the plaintiff sought a finding that she was entitled to minimum wages under the FLSA as an employee, while the defendants contested that, arguing that any duties she had performed for them were volunteered. The case apparently followed the break-up of the plaintiff from the individual defendant in their romantic relationship. It was undisputed that the plaintiff performed many duties for the defendants- operators of a group home- over the approximate 2 years in question, including obtaining workers compensation insurance, attendance at residential training classes, cleaning and purchasing items for the facility, putting in business processes for the business (i.e. payroll services), marketing, hiring employees on behalf of defendants and other duties necessary for the defendants’ business to operate. While most of these facts were uncontested, the defendants maintained that this work was all volunteered, despite the fact, while the plaintiff asserted she expected to be paid as an employee.

After discussing various tests for employment under the FLSA (i.e. independent contractor vs employee), the court noted that there was no specific test for determining whether someone who performs duties for another is an employee or a volunteer under the FLSA. Thus, the court explained it was constrained only by a flexible “reasonableness” standard that takes into account the totality of the circumstances. The court explained:

In determining whether someone is an employer or a volunteer, this court has not stumbled upon any factored test similar to that of the 6–factor economic realities test used to differentiate independent contractors and employees. Rather, the court finds that the test for employment is governed by a reasonableness standard that takes into account the totality of the circumstances. The court is to review ” ‘the objective facts surrounding the services performed to determine whether the totality of the circumstances’ establish volunteer status, … or whether, instead, the facts and circumstances, objectively viewed, are rationally indicative of employee status.” Purdham, 637 F.3d at 428 (quoting Cleveland v. City of Elmendorf, 388 F.3d 522, 528 (5th Cir.2004)). In addition to the “economic reality” of the situation, other factors to consider include whether there was an expectation or contemplation of compensation, whether the employer received an immediate advantage from any work done by the individual, the relationship of the parties, and the goals of the FLSA. See Alamo Found., 471 U.S. at 300–01;
Rutherford Ford Corp. v. McComb, 331 U.S. 722, 730 (1947) (stating that the employer-employee relationship “does not depend on such isolated factors but rather upon the circumstances of the whole activity”); Lauritzen, 835 F.2d at 1534–35). It is the examination of objective indicia and the application of common sense with which this court arrives at its determination of whether the plaintiff here is an employee for purposes of the FLSA.

Applying this test to the facts at bar, the court held that the plaintiff was an employee rather than a volunteer:

According to Okoro, she never agreed to volunteer for Aegis; at all times, she expected to be compensated for her work. Specifically, Okoro expected to be paid $2,000 per month for her work, and in agreeing to defer her compensation until the facility garnered clients, she still worked with the expectation that she would be paid. (Okoro Aff. ¶¶ 4, 7–9.) Battles, while arguing that Okoro was a volunteer, also states that he intended to pay Okoro for her work if she qualified as an administrator and if the business had enough money in the future. (Battles Aff. ¶¶ 6, 25 .) The court notes Battles’s expectation not for the purpose of weighing the parties’ competing assertions (for this would surely contradict the FLSA’s remedial purpose) but to merely highlight that he too contemplated a compensation mechanism for Okoro’s work.

Expectations aside, it is not entirely correct for the plaintiff to assert that the defendants have failed to identify any personal benefit that Okoro purportedly received from her work for Aegis. In his affidavit, Battles avers that when Okoro sold him worker’s compensation insurance for Aegis, she told him “that she wanted to learn the group home business and therefore, she would learn the business by working at Pyramid 4 Aegis for no compensation.” (Battles Aff. ¶ 5.)

This court is not unmindful of any claim that Okoro may have wanted to learn and indeed did learn about the CBRF business. That may certainly have been part of her motivation in providing Battles some assistance in his effort to build the business. However, Battles does not deny that the work Okoro performed on behalf of Aegis conferred an immediate benefit to the company. Thus, the facts in this case stand in stark contrast to those in Walling. In Walling, the lower court’s finding that “the railroads receive[d] no ‘immediate advantage’ from any work done by the trainees” was unchallenged. 330 U.S. 148, 153. Indeed, “the applicant’s work [did] not expedite the company business, but … sometimes [did] actually impede and retard it.”   Id. at 150. In other words, the railroad was not receiving any immediate benefit from the training that was being given to the prospective brakemen.

Not so in the case at bar. The evidence here does not demonstrate that the work performed by Okoro on behalf of Aegis interfered in any way with the business of Aegis. To the contrary, the nature of the work that she performed, such as cleaning, picking up prescriptions, appearing in court on behalf of clients at the facility, and calling in hours for caregivers to Paychex, was undeniably of substantial assistance to Aegis. Even more to the point, such work was not akin to the “course of practical training,” which the prospective yard brakemen in Walling received. Id. at 150. One hardly needs to be trained in how to clean a facility, how to pick up prescriptions, and how to call in hours for caregivers.

Additionally, the economic reality of the situation was that Okoro worked for Aegis for a substantial length of time. The length of the “training course” that the prospective brakemen received in Walling was seven or eight days. Id. at 149. By contrast, Okoro worked for Aegis over the course of almost one year.

To be sure, Okoro and Battles had a “personal relationship” over the course of the relevant time period. (Okoro Aff. ¶ 6.) While it may be that at least some of the time Okoro spent at Aegis was to socialize with Battles, that particular matter may speak to the amount of damages to which she is entitled; after all, socialization may not be the equivalent of work. For purposes of Okoro’s motion, it is sufficient to find that, despite her relationship with Battles, she still performed substantial work for Aegis, Aegis reaped a direct and immediate benefit from her work, and she had a reasonable expectation that she would be compensated for her work. In sum, taking into account the totality of the circumstances in this case leads me to conclude that Okoro performed work for Aegis as an employee and not as a volunteer.

The court also noted the duty to interpret the FLSA broadly in favor of coverage, given the FLSA’s remedial purpose:

Finally, it must not be forgotten that, by design, the FLSA’s purpose is “remedial and humanitarian.” Tenn. Coal, Iron & R.R. Co. v. Muscodoa Local No. 123, 321 U.S. 590, 597 (1944), superseded by statute, Portal–to–Portal Act of 1947, Pub.L. No. 80–49, 61 Stat. 86 (1947) (codified as amended at 29 U.S.C. § 254). To effectuate this purpose, the FLSA requires courts to interpret its application broadly. See id. With this in mind, allowing Aegis the benefit of Okoro’s free labor when there existed an expectation of compensation would not comport with the FLSA’s purpose.

Thus, to the extent that the plaintiff’s motion seeks a determination that she worked for Aegis and is therefore entitled to compensation for such work under the FLSA, her motion will be granted. Precisely how much work she performed for Aegis, and for how many hours she should be compensated by Aegis, are matters for trial. It is enough to say that the work she performed for Aegis, at least for purposes of the FLSA, was not as a volunteer, but rather as an employee.

Click Okoro v. Pyramid 4 Aegis to read the entire Decision and Order on Plaintiff’s Motion for Summary Judgment.

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March 17, 2012 · 8:56 am

5th Cir.: Member of LLC Lacked Sufficient Day-to-Day Involvement In Operation of Nightclub to be “Employer” Under FLSA

Gray v. Powers

This case was before the Fifth Circuit on Plaintiff’s appeal of an Order granting an individual defendant summary judgment, having held that there were insufficient facts to render the individual defendant to be an “employer” subject to FLSA liability.  Affirming the decision below, the Fifth Circuit held that the individual defendant- who was not involved in the day-to-day operations of the defendant nightclub as a member of the LLC that owned same- lacked sufficient involvement to be an “employer.”

According to the court it was undisputed that- after participating in the initial construction of the nightclub- the individual defendant in question (“Powers”) had little day-to-day involvement in the club’s operations:

“After completion of the construction, Powers was not involved in the day-to-day operation of the Pasha Lounge. Powers only visited the club on five or six occasions during the seventeen months the club was open for business. He denies that he supervised any employee, defined employee job duties, controlled work schedules, or maintained employment records. During his rare trips to the lounge, the bartenders would tell him how much they made in tips. Powers was, however, a signatory on PEG’s checking account, along with Kathleen and the club’s general manager, and he occasionally signed several pages of pre-printed checks.

Other members, Kathleen in particular, were much more involved in the operation of the club. Kathleen kept the books, was a signatory on the accounts, received nightly numbers, and served as the point of contact for the general manager. The members of PEG collectively made significant business decisions such as hiring John W. Ritchey, Jr. as the first general manager. Ritchey’s job duties included hiring and firing staff, handling promotions, setting operation hours, and supervising day-to-day operations. In Ritchey’s words, he was “in charge of pretty much everything that went on at the club.” Ritchey was later removed by the members of PEG because his salary was too expensive.

Appellant Gray was a bartender at Pasha Lounge from February to September 2007 and replaced Ritchey as general manager from March to September 2008. Gray asserts that while he was a bartender under Ritchey’s supervision, he and his fellow bartenders were not paid an hourly wage and were compensated solely by tips. Gray considered Ritchey to be his boss at that time because Ritchey hired him and defined his job duties. Though Gray asserts that Powers was another “supervisor,” Gray admitted in a deposition that Powers was not involved in the club’s day-to-day operations. Powers rarely visited the club, but on one visit he did tell Gray that he was doing a “great job.” Also, on two occasions Powers asked Gray to serve specific people while Powers was a patron at the club. Beyond these three instances, Gray could not remember any other occasion when Powers “directed” his work as a bartender. Gray contends, however, that Powers asked him to fill in as general manager after Ritchey was let go. Stephen disputes that fact because he allegedly enlisted Gray to fill in as general manager.”

After going through each element of the economic reality test, the court concluded that there was insufficient evidence that Powers was an “employer” under the FLSA:

“Applying the economic reality test to Powers, we reaffirm the district court’s conclusion that no reasonable jury could have found him to be an employer. The dominant theme in the case law is that those who have operating control over employees within companies may be individually liable for FLSA violations committed by the companies. An individual’s operational control can be shown through his power to hire and fire, ability to supervise, power to set wages, and maintenance of employment records. While each element need not be present in every case, finding employer status when none of the factors is present would make the test meaningless. We decline to adopt a rule that would potentially impose individual liability on all shareholders, members, and officers of entities that are employers under the FLSA based on their position rather than the economic reality of their involvement in the company. In this case, Powers was simply not sufficiently involved in the operation of the club to be an employer. The district court’s judgment is AFFIRMED.”

Click Gray v. Powers to read the entire decision.

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September 17, 2011 · 8:47 am

N.D.Ga.: Exotic Dancers Are Employees Not Independent Contractors; Entitled to Minimum Wages and Overtime

Clincy v. Galardi South Enterprises, Inc.

This case was before the court on numerous motions.  As discussed here, the judge granted plaintiffs’ motion for summary judgment and denied defendants’ cross motion, holding that plaintiffs’- exotic dancers or strippers- were defendants’ employees, not independent contractors.  As such, plaintiffs were entitled to minimum wages and overtime pursuant to the Fair Labor Standards Act.

Significantly, none of the plaintiffs were paid any direct wages by the club in which they worked.  Instead, they paid defendants for the right to perform in their club.  The plaintiffs’ each were required to sign independent contractor agreements as a prerequisite to beginning work for the defendants.  Further, the defendants claimed that the dancers were independent contractors because they were paid directly by customers and did not receive paychecks.  They also claimed that the club did not profit from the dancers and that the dancers did not necessarily drive the club’s business.  However, based on evidence that the defendants set the prices for tableside dances and how much of their gross receipts dancers were required to turn over in the form of “house fees” and disc jockey fees, as well as the fact that the defendants set specific schedules for the dancers, created rules of conduct (subject to discipline), check-in and check-out procedures and otherwise controlled the method and manner in which plaintiffs worked, the court held that the defendants were plaintiffs’ employers under the FLSA.

Although not a groundbreaking decision, it is significant because the majority of strip clubs around the country continue to disregard court decisions that have held that most strippers, employed under circumstances similar to those in the case, are actually employees.

Click Clincy v. Galardi South Enterprises, Inc. to read the entire Order.

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June 9, 2011 · 7:10 am

Are the FLSA’s Enterprise Coverage Requirements Outdated in Today’s Economy?

In his recent article, “Taking the Employer Out of Employment Law? Accountability for Wage and Hour Violations in an Age of Enterprise Disaggregation,” Professor, Timothy P. Glynn of Seton Hall School of Law makes a compelling argument that the answer is yes.

In the abstract to his article, Professor Glynn explains:

“Violations of wage and hour mandates are widespread at the low end of the labor market. The disaggregation of business enterprises into smaller, independent parts has been an important factor in this growing problem. Limitations on liability for work-law violations invite such arrangements since statutory protections for workers usually impose duties only on “employers.” That status, in turn, hinges on the level of control a firm exercises over the work, and when exacting control is not necessary, firms usually can avoid accountability by shifting work to independent third-party suppliers. This creates severe enforcement obstacles: detection becomes difficult, labor suppliers often are undercapitalized, and coverage uncertainties lead to unprosecuted claims and discounted settlements. Thus, disaggregation does far more than shift legal responsibility from one entity to another: it allows end-user firms to avoid noncompliance risks while benefiting from labor at a price discounted by the unlikelihood of enforcement.”

Thus, Professor Glynn proposes “eliminating the ‘employer’ coverage barrier altogether.”  Under his approach, “commercial actors would be held strictly liable for wage and hour violations in the production of any goods and services they purchase, sell, or distribute, whether directly or through intermediaries. The only limitation is that a firm’s liability would not exceed the proportion of the violations attributable to the goods or services it purchases, sells, or distributes.”

Adopting this less restrictive coverage requirement would lead to easier enforcement of wage and hour laws and thus, fewer abuses at the low end of the labor market.  It doesn’t appear that there’s any push to adopt these logical changes which would no doubt further the remedial goals of wage and hour laws, but it’s a refreshing perspective nonetheless.  In this day and age, Professor Glynn’s recognition that a modern fractured economy is far different than the economy of the past, with fewer larger actors, is largely unaddressed by wage and hour laws that are currently on the books.

Click Abstract to read more on Professor Glynn’s work.

Thanks to the Workplace Prof Blog for bringing this to our attention.

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