Tag Archives: FLSA Employer

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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S.D.N.Y.: Where Successor Liability Alleged, “Successor in Interest” Need Not Meet the $500,000 Threshold As Long as the Previous Employer Did

Alvarez v. 40 Mulberry Restaurant, Inc.

This case was before the court on the defendant’s motion for summary judgment. Plaintiff alleged that the defendant at issue was a “successor in interest” to his actual employers, whom he actively worked for and whose failure to pay him pursuant to the FLSA gave rise to his claims. The defendant alleged to be the “successor in interest” such that it had derivative liability (of plaintiff’s actual employers), asserted that the case was due to be dismissed against it, because plaintiff could not show that it grossed $500,000.00 or more in annual sales during the periods relevant to the claim. Explaining that this was an incorrect reading of the law, the court reasoned that the successor employer was covered, so long as the plaintiff’s actual employers were subject to enterprise coverage under the FLSA. However, because neither the plaintiff, nor the defendants addressed the issue of whether the plaintiffs actual employers were covered enterprises, the court remanded the case for further discovery on this issue.

Discussing the issue, the court explained:

Defendants 40 Mulberry and Chin claim that, because it has not been established that AR Restaurant has ever grossed $500,000 or more in annual sales, Alvarez’s FLSA claim must be dismissed. That is incorrect.

The FLSA covers only those workers employed by an “enterprise” that is “engaged in commerce.” 29 U.S.C. § 207. “An entity constitutes an enterprise where ‘the related activities performed (either through unified operation or common control) by any person or persons [are] for a common business purpose.’ ” Rodriguez v. Almighty Cleaning, 784 F.Supp.2d 114, 121 (E.D.N.Y.2011) (quoting 29 U.S.C. § 203(r)). An enterprise is “engaged in commerce or in the production of goods for commerce” if, inter alia, it: (1) “has employees engaged in commerce or in the production of goods for commerce;” or “has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person;” and (2) its “annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated).” 29 U.S.C. § 203(s)(1)(A)(i)-(ii).

Defendants argue that, because the summary judgment record would not permit a fact finder to conclude that AR Restaurant has ever grossed $500,000 or more in annual sales, Alvarez cannot sue 40 Mulberry and Chin under the FLSA. But that does not logically follow. It is correct that, on the record before the Court, AR Restaurant’s financial condition would prevent an employee from suing under the FLSA based on work done at AR Restaurant. But Alvarez is not seeking to impose liability on 40 Mulberry and Chin based on AR Restaurant’s activities. Instead, he is claiming that, during his employment at the former Asia Roma, which ended in July 2010, the former Asia Roma (1) had $500,000 or more in annual sales; and (2) violated the FLSA’s substantive obligations as to overtime and other pay. He further alleges that defendants 40 Mulberry and Chin are responsible for those violations as successors in interest. Assuming arguendo that Asia Roma had $500,000 in annual revenues required by the FLSA in, say, 2009, the fact that AR Restaurant has not had such revenues would not shield defendants, if properly held to be responsible for Asia Roma’s conduct, from liability for FLSA violations during 2009. The financial condition of AR Restaurant is thus not determinative. The relevant question is, instead, whether Asia Roma was a qualifying “enterprise engaged in commerce” when it employed Alvarez, and whether 40 Mulberry and Chin are answerable for Asia Roma’s liabilities.

It does not appear that the parties have focused their discovery efforts on the critical question of whether Asia Roma had the requisite sales during Alvarez’s employment. However, this question is potentially dispositive, and the Court believes it must be addressed promptly.

The Court, accordingly, grants the parties one month to conduct further discovery—by means including, but not limited to, subpoenas to Asia Roma, Chan, Lee, or any other relevant party, person, or entity—on the question of whether Asia Roma constituted an “enterprise engaged in commerce” during the period of Alvarez’s employment. After the close of discovery, the Court will afford the defendants two weeks to move for summary judgment on the issue of whether Asia Roma was an “enterprise engaged in commerce” during the years it employed Alvarez. If summary judgment is granted for the defendants on that ground, such that Alvarez’s FLSA claims cannot go forward, the Court expects to dismiss, without prejudice, his state law claims. If, on the other hand, the FLSA sales threshold is met by competent evidence for all or some of these years, discovery may then go forward on the remaining issues in the case.

The court also denied the defendants’ motion for summary judgment to the extent they sought a finding that the subsequent business was not a successor in interest, reasoning that under the relevant tests (the traditional common law test OR the “substantial continuity test”) a finder of fact could certainly find that the subsequent business was a successor in interest to plaintiff’s actual employers.

Click Alvarez v. 40 Mulberry Restaurant, Inc. to read the entire Opinion & Order.

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D.Colo.: “Expeditor” Proper Participant in Restaurant’s Tip Pool

Giuffre v. Marys Lake Lodge, LLC

This case was before the court on the defendant’s motion for summary judgment. At issue was whether its tip pool- which included its “expeditors”- complied with the FLSA. Holding that the defendant-restaurant was entitled to include the expeditor in the tip pool, the court reasoned that: (1) the expeditor was properly deemed a “front-of-the-house” employee with requisite duties to be deemed a “tipped employee;” (2) the expeditor was not an “employer” under the FLSA; and (3) the defendant had properly put plaintiff on notice of its intention to take the tip credit. Thus, the court granted the defendant’s motion.

Briefly discussing the chief issue of interest, the court explained:

MLL utilized the expeditor position on busy nights to assist in its restaurant. Defendants contend that the expeditor is a “front of the house” position that falls within the definition of a “tipped employee” for purposes of the FLSA, thus barring plaintiff’s claim that the tip credit is invalidated by the sharing requirement. See Roussell v. Brinker Int’l, Inc., 441 F. App’x 222, 231 (5th Cir.2011) (“Customarily, front-of-the-house staff like servers and bartenders receive tips. Back-of-the-house staff like cooks and dishwashers do not, and thus cannot participate in a mandatory tip pool.”). In arguing about whether the expeditor could share in tips, the parties focus on the position’s level of interaction with customers. See id. (“Direct customer interaction is relevant because it is one of the factors distinguishing these two categories of workers.”); see Townsend v.. BG–Meridian, Inc., 2005 WL 2978899, at *6 (W.D.Okla. Nov. 7, 2005) (“The cases that have considered whether a given occupation falls within the definition of a tipped employee have focused on the level of customer interaction involved in that occupation.”).

Plaintiff admits that, during the time he worked at MLL, the expeditor position was usually filled by Mikilynn Wollett. See Docket No. 64 at 3, ¶ 8; Docket No. 92 at 3, ¶ 8. Ms. Wollett descibes the expeditor as a “front of the house” position with the following responsibilities: “checking the plates as they come out from the kitchen cooks to make sure they match the tickets; placing the food on the serving trays; taking the serving trays to the tables and delivering the food to customers; checking in with customers about their meals and exchanging food if the customer has [a] complaint; refilling beverages; chatting with customers; and assisting the wait staff in any other way necessary.” Docket No. 64 –1 at 2, ¶¶ 1–2. According to Ms. Wollett, the “position is very similar to that of a waiter, and the attire is nearly identical, but the expeditor/food runner does not take the customers’ orders.” Id. at 1, ¶ 2.

Curiously, the court appears to have resolved factual issues with regard to the alleged duties of the expeditor and simply rejected plaintiff’s proffered evidence in that regard. As such, the court seemed to imply that with a stronger factual record- supported by testimony other than that of the named-plaintiff alone- it may have reached a different result, at least at the summary judgment stage. Thus, it’s not clear how much precedential value this case will have, if any.

Click Giuffre v. Marys Lake Lodge, LLC to read the entire Order.

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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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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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D.D.C.: High-Profile D.C. Chef Is An “Employer” And Personally Liable For Wage And Hour Violations At His Restaurant

Ventura v. Bebo Foods, Inc.

This case, concerning alleged Wage and Hour violations under the FLSA and the DCWPCL was before the Court on two issues: (1) whether defendant Roberto Donna (“Donna”) was personally liable for minimum wage and overtime violations of the Fair Labor Standards Act (“FLSA”) and the D.C. Wage Payment and Collection Law (“DCWPCL”); and (2) damages, if any, as to the corporate defendants.  The Court held that Donna was personally liable for such violations, but deferred on the remaining issues.

Discussing the personal liability of Donna, the Court reasoned:

“The Court concludes that Donna is personally liable under the FLSA and DCWPCL for minimum wage, overtime, and equal pay violations because he is an employer under both the FLSA and DCWPCL. To be liable for violations of the FLSA, the defendant must be an “employer.” 29 U.S.C. §§ 206-207 (2010). The FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S .C. § 203(d). This definition is broadly construed to serve the remedial purposes of the act. Morrison v. Int’l Programs Consortium, Inc., 253 F.3d 5, 10 (D.C.Cir.2001). Thus, courts look to the “economic reality” rather than technical common law concepts of agency to determine whether a defendant is an employer. Id. at 11; see also Donovan v. Agnew, 712 F.2d 1509, 1510 (1st Cir.1983).

In applying the economic reality test, the Court considers “the totality of the circumstances of the relationship between the plaintiff/employee and defendant/employer to determine whether the putative employer has the power to hire and fire, supervise and control work schedules or conditions of employment, determine rate and method of pay, and maintain employment records.” Del Villar v. Flynn Architectural Finishes, 664 F.Supp.2d 94, 96 (D.D.C.2009) (citing Morrison, 253 F.3d at 11). This test may show that more than one “employer” is liable for violations of the FLSA. Dep’t of Labor v. Cole Enterprises, Inc., 62 F.3d 775, 778 (6th Cir.1995). As a result, a corporate officer may qualify as an employer along with the corporation under the FLSA if the officer has operational control of a corporation’s covered enterprise. Agnew, 712 F.2d at 1511. To determine whether a corporate officer has operational control, the Court looks at the factors above plus the ownership interest of the corporate officer. See Cole Enterprises, 62 F.3d at 778 (explaining that an individual has operation control if he or she is a high level executive, has a significant ownership interest, controls significant functions of the business, and determines salaries and makes hiring decisions).

Here, plaintiffs have demonstrated that Donna is an “employer” under the FLSA because he has operational control over the corporate defendants. First, Donna is an executive with significant ownership interest in the corporate defendants. He is the president and sole owner of Bebo Foods and was the president and sole owner of RD Trattoria. (Donna Dep. at 18:3-20:11, 29:16-17.) He also owned eighty percent of Galileo. (Id. at 33:7-8.) Second, Donna had the power to hire and fire, control work schedules and supervise employees, determine pay rates, and maintain employment records. For example, Donna transferred employees from Galileo to Bebo Trattoria when Galileo closed in 2006, and he took part in the hiring of other employees. (Pls.’ Opp’n [12] to Defs.’ Mot. to Dismiss Ex. 2; Donna Dep. 54:5-7.) Moreover, at the evidentiary hearing, several plaintiffs testified that Donna supervised plaintiffs on the floor of his restaurants. He also approved wage payments to plaintiffs, including the issuance of post-dated or unsigned checks, the payment of partial wages, and the withholding of any payment. (See, e.g., Ventura Aff. ¶¶ 7-9; Vuckovic Aff ¶ 4.) Furthermore, when plaintiffs complained about defendants’ payment practices, he informed them that he withheld wage payments-either in full or in part-from plaintiffs in order to pay Bebo Trattoria’s past debts for which he was behind in payment. (See, e.g., Ventura Aff. ¶ 7; Romic Aff. ¶ 10.) Indeed, plaintiffs’ evidence demonstrates that Donna exerted operational control over the corporate defendants.

Accordingly, Donna is an “employer” under the FLSA and is personally liable for the corporate defendants’ wage, overtime, and equal pay violations. Similarly, because the DCWPCL is construed consistently with the FLSA, Donna is an “employer” under the DCWPCL and is liable for the corporate defendants’ violations of its wage and overtime provisions.”

Due to the high volume of claims against restaurants and their chef-owners recently, this case will no-doubt will have wide-reaching reverberations.

To read the entire opinion, click here.

To learn more about laws and regulations applicable to tipped employees, click here.

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S.D.Fla.: Counterclaim For Indemnity Against FLSA Plaintiff In Her Supervisory Capacity Dismissed; FLSA Does Not Permit Such Claims

Quintana v. Explorer Enterprises, Inc.

This case was before the Court on the Plaintiff’s Motion to Dismiss Defendants’ Counterclaim Against Marcia Martinez.  Martinez had commenced suit against the Defendants alleging violations of the FLSA.  Specifically, Plaintiff sought to dismiss the Defendants’ counterclaims against her alleging that she should indemnify them, as an employer in her supervisory capacity.  Dismissing the counterclaim, the Court reasoned that such a counterclaim was not permissible under the FLSA.

The Court explained:

“The defendants brought the counterclaim under the FSLA alleging that Ms. Martinez is an employer within the meaning of the FLSA. The defendants claim that Ms. Martinez is potentially liable for violating the FLSA as a person who is “acting directly or indirectly in the interest of an employer in relation to an employee .” 29 U.S.C. § 203(d). In their Response (DE # 50, 4/20/10), the defendants claim that they are “unaware of a single case holding that one employer within the meaning of the FLSA is prohibited from seeking indemnification or contribution from a second employer with [sic] the meaning of the FLSA, and Martinez cites none.” (DE # 50 p. 5; 4/20/10) Although the Eleventh Circuit has not addressed the issue, other circuits have. In LeCompte v. Chrysler Credit Corp., 780 F.2d 1260 (5th Cir.1986), which is cited by the plaintiff, the Fifth Circuit found that the district court property dismissed the counterclaim for indemnity against two plaintiffs in their supervisory capacity. The defendants fail to distinguish LeCompte.

Instead, the defendants unsuccessfully attempt to distinguish the Tenth Circuit decision in Martin v. Gingerbread House, Inc., 977 F.2d 1405 (10th Cir.1992), on the basis that it was a third-party complaint rather than a counterclaim. Notably, in Martin, the Tenth Circuit expressly agreed with the Fourth and Fifth Circuits’ holdings that “indemnity actions against employees work against the policy of the FLSA.” Id. at 1408. In Martin, the Tenth Circuit explained that

[c]ompliance with the FLSA will not be furthered if employees must defend against indemnity actions. Such actions are not part of the comprehensive statutory scheme set forth by Congress. The conflict between the purposes of federal law and a state cause of action require the latter to yield. We therefore hold that a third party complaint by an employer seeking indemnity from an employee is preempted.  Id.

In their Response (DE # 50, 4/20/10), the defendants concede that there are very few cases on point. The defendants, however, believe that the lack of case holdings prohibiting such indemnification indicates that defendants may seek such relief. Although the Eleventh Circuit has not addressed this issue, the circuits that have addressed the issue consistently found that indemnification claims against employees or owners are contrary to public policy and the legislative intent of the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1407 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999).

The dispositive issue raised in the plaintiff’s motion to dismiss is whether the indemnification sought by the defendants would be allowed under the FLSA. The Supreme Court addressed a related issue in Northwest Airlines v. Transp. Workers Union, 451 U.S. 77, 94-95 (1981). The Supreme Court analyzed the legislative intent regarding an implied right to contribution under the Equal Pay Act when the Act contains no reference of such contribution. The Court determined that unless the “congressional intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist.” Id. (emphasis added).

Several circuits have applied the reasoning of Northwest Airlines to their analysis of the viability of an indemnity claim under the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1408 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999); Villareal v. El Chile, Inc., 601 F.Supp.2d, 1011, 1015 (N.D.Ill.2009); Spellman v. American Eagle Express, Inc., 680 F.Supp.2d 188, 191 (D.C.Cir.2010). Additionally, the Second, Fourth, Fifth and Tenth Circuits have consistently held that indemnity claims against employees under the FLSA are preempted by the Supremacy Clause of the United States Constitution. See LeCompte, 780 F.2d at 1264. See also Spellman, 680 F.Supp.2d at 191; Villareal, 601 F.Supp.2d at 1015; Lyle, 954 F.2d at 987 (adopting the reasoning of the court in LeCompte ).

The FLSA does not mention a right to seek indemnity. Indemnity against an employee would be contrary to the legislative intent. See LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986) (noting that such indemnity action would “undermine employers’ incentive to abide by the Act”). In Herman, the Second Circuit noted that the text of the FLSA makes no provision for contribution or indemnification and the Act’s legislative history is silent on a right to contribution or indemnification. Herman, 172 F.3d at 144; see also Lyle, 954 F.2d at 987 (holding that indemnity against an employee “is something the FLSA simply will not allow”). Most recently, in Villareal, 601 F.Supp.2d at 1015, the court affirmed the dismissal of an employer’s cross-claim against its supervisory personnel for indemnity claims under the FLSA (citing LeCompte ).

In LeCompte, the Fifth Circuit acknowledged that the supervisory personnel were partially at fault for the violation that resulted. Nonetheless, the court held that an indemnity claim against such personnel under the FLSA would be inappropriate as it would frustrate Congress’ purpose in enacting the FLSA. Id. at 1264. Similarly, in the case at hand, the defendants’ basis for the counterclaim against Ms. Martinez, as a store manager, is that she was the person most responsible for setting the plaintiffs’ rates of pay and schedule and that she was in the best position to ensure the defendants’ compliance with the FLSA. Applying the reasoning of the court in LeCompte, the counterclaim for indemnity is not viable.”

Thus, the Court granted Plaintiff’s Motion and dismissed Defendants’ counterclaim.

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