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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.
M.D.Pa.: Although Sovereign Immunity Bars FLSA Suit Against State Of Pennsylvania, State Official May Be Sued In His Official Capacity For Non-Monetary Declaratory Relief
Dino v. Pennsylvania
Plaintiffs filed a collective action to enforce the provisions of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., against the Commonwealth and against Defendant Beard in his official and personal capacities. Specifically, Plaintiffs allege that they were or are employed by the Commonwealth’s Department of Corrections in the job classification of Corrections Officers 3 (“CO3 s”). Plaintiffs contend that they should be classified as “non-exempt” for FLSA overtime purposes and are entitled to cash compensation for hours worked in overtime.
Both Defendants moved to dismiss or for summary judgment in the alternative citing the Eleventh Amendment. The Court granted the State’s Motion, but denied Beard’s Motion in his individual capacity, holding that the Plaintiffs properly stated a cause of action against Beard (in both his official and individual capacity) solely for non-monetary declaratory relief.
Discussing the claims against Beard the Court stated, “[t]he Supreme Court has made clear that the Eleventh Amendment bars federal courts from entertaining suits by private parties against states. Alden v. Maine, 527 U.S. 706, 752, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999). Generally, Eleventh Amendment immunity also extends to state officials sued in their official capacity because in such a case the state is the real party in interest. Melo v. Hafer, 912 F.2d 628, 635 (3d Cir.1990) (citing Kentucky v. Graham, 473 U.S. 159, 165-66, 105 S.Ct. 3099, 87 L.Ed.2d 114 (1985)). “Eleventh Amendment immunity is, however, subject to three primary exceptions: (1) congressional abrogation, (2) waiver by the state, and (3) suits against individual state officers for prospective injunctive and declaratory relief to end an ongoing violation of federal law.” Pa. Fed’n of Sportsmen’s Clubs, Inc. v. Hess, 297 F.3d 310, 323 (3d Cir.2002).
Plaintiffs argue that Eleventh Amendment immunity is inapplicable here based on the third exception, the doctrine of Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). “In Ex Parte Young, the Supreme Court carved out an exception to Eleventh Amendment immunity by permitting citizens to sue state officials when the litigation seeks only prospective injunctive relief in order to end continuing violations of federal law.” Balgowan v. State of New Jersey, 115 F.3d 214, 217 (3d Cir.1997). “The doctrine applies to violations of the United States Constitution and to violation of federal statutes.” Hess, 297 F.3d at 323. In determining whether the Young doctrine applies, a court need only go through the straight-forward inquiry of whether (1) the complaint alleges an ongoing violation of federal law and (2) whether the complaint seeks relief properly characterized as prospective. Id. at 324. “However, Young does not apply if, although the action is nominally against individual officers, the state is the real, substantial party in interest and the suit in fact is against the state.” Id. “[W]hen the action is in essence one for the recovery of money from the state, the state is the real, substantial party in interest and is entitled to invoke its sovereign immunity from suit even though individual officials are nominal defendants.” Regents of the University of California v. Doe, 519 U.S. 425, 429, 117 S.Ct. 900, 137 L.Ed.2d 55 (1997) (citation and internal quotation marks omitted).
In Balgowan, the Third Circuit addressed a case with similar facts to the one at bar. In that case, New Jersey Department of Transportation (“DOT”) engineers brought FLSA overtime compensation claims against the New Jersey DOT Commissioner. 115 F.3d at 217-18. The Third Circuit noted that it would not have jurisdiction over claims for injunctive relief, since FLSA limited such claims to those brought by the United States Secretary of Labor. Id. at 218. However, the appellate court allowed the engineers’ compensation claims to proceed against the commissioner under the Young doctrine because the engineers were seeking prospective declaratory relief. Id.
Like the DOT engineers in Balgowan, Plaintiffs have claims for declaratory relief that fall within the Young exception. First, Plaintiffs allege that Defendant Beard has violated the FLSA by failing to pay them “time and a half” for time worked in excess of the maximum hours per week period. (Doc. No. 1 ¶ 47-50.) Second, Plaintiffs seek prospective declaratory relief: a ruling that they are nonexempt employees under the FLSA and are entitled to compensation for excess hours worked. (Doc. No. 1 at 15-16.)
Defendant Beard asserts that the Young doctrine does not apply to him since the Commonwealth is the real party in interest. Yet Plaintiffs call for prospective relief that does not include recovery of money from the state. Specifically, Plaintiffs assert that Beard can: (1) remind the Commonwealth to uphold the law, (2) schedule and deploy CO3s to avoid the need for overtime, (3) direct subordinate Commonwealth staff to comply with the FLSA, or (4) resign his position. (Doc. No. 26, at 11.)
The Court finds that Plaintiffs have adequately alleged that Defendant Beard falls within the Young exception. This comports with the reasoning behind Young. Specifically, “[t]he theory behind Young is that a suit to halt the enforcement of a state law in conflict with the federal constitution is an action against the individual officer charged with that enforcement and ceases to be an action against the state to which sovereign immunity extends; the officer is stripped of his official or representative character and becomes subject to the consequences of his individual conduct…. The Young doctrine is accepted as necessary to permit federal courts to vindicate federal rights and to hold state officials responsible to the ‘supreme authority of the United States.’ “ Hess, 297 F.3d at 323 (quoting MCI Telecomm. Corp. v. Bell Atlantic-Pa., 271 F.3d 491, 506 (3d Cir.2001) (citations omitted)).
Because Plaintiffs’ allegations against Defendant Beard in his official capacity fall within the Young exception, Defendant Beard’s motion on the pleadings for immunity based on his official capacity will be denied.
B. Individual Capacity
Defendant Beard next asserts that he is entitled to qualified immunity in his individual capacity.
“The doctrine of qualified immunity protects government officials ‘from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.’ “ Pearson v. Callahan, — U.S. —-, 129 S.Ct. 808, 815, 172 L.Ed.2d 565 (2009) (quoting Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982)). In Saucier v. Katz, 533 U.S. 194, 201, 121 S.Ct. 2151, 150 L.Ed.2d 272 (2001), the Supreme Court set forth a two-tiered analysis to assist in determining whether a defendant is entitled to qualified immunity:
First, a court must decide whether the facts that a plaintiff has alleged (see Fed. Rules Civ. Proc. 12(b)(6), (c)) or shown (see Rules 50, 56) make out a violation of a constitutional right. Second, if the plaintiff has satisfied this first step, the court must decide whether the right at issue was “clearly established” at the time of defendant’s alleged misconduct. Qualified immunity is applicable unless the official’s conduct violated a clearly established constitutional right. Pearson, 129 S.Ct. at 815-16 (citing Saucier, 533 U.S. 194, 121 S.Ct. 2151, 150 L.Ed.2d 272) (internal citations removed). In Pearson, the Supreme Court clarified that the order of the Saucier analysis was flexible, and that a court should “exercise [its] sound discretion in deciding which of the two prongs of the qualified immunity analysis should be addressed first in light of the circumstances in the particular case at hand.” Bayer v. Monroe County Children and Youth Services, 577 F.3d 186, 191-92 (3d Cir.2009) (quoting Pearson, 129 S.Ct. at 818).
Whether Defendant Beard should be afforded qualified immunity is likely to turn on the second Saucier prong of whether the right at issue was clearly established. In Bayer, the Third Circuit outlined the applicable analysis:
“The relevant, dispositive inquiry in determining whether a right is clearly established is whether it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted.” Saucier, 533 U.S. at 202. “This inquiry … must be undertaken in light of the specific context of the case, not as a broad general proposition,” id. at 201, and “turns on the ‘objective legal reasonableness of the action, assessed in light of the legal rules that were clearly established at the time it was taken.’ “ Pearson, 129 S.Ct. at 822 (quoting Wilson v. Layne, 526 U.S. 603, 614, 119 S.Ct. 1692, 143 L.Ed.2d 818 (1999) (internal quotation marks omitted)) ….Bayer, 577 F.3d at 192-93. “To be established clearly, however, there is no need that ‘the very action in question [have] previously been held unlawful.’ “ Safford Unified School Dist. No. 1 v. Redding, — U.S. —-, 129 S.Ct. 2633, 2643, 174 L.Ed.2d 354 (2009) (quoting Wilson v. Layne, 526 U.S. 603, 615, 119 S.Ct. 1692, 143 L.Ed.2d 818 (1999)).
In the present case, the parties dispute whether the CO3 positions at the Department of Corrections should be exempted from the FLSA. The FLSA exempts from its overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” See 29 U.S.C. § 213(a)(1). The Code of Federal Regulations defines executive employees as those (1) who receive compensation “of not less than $455 per week”; (2) whose “primary duty” is the management of the enterprise in which the employee is employed or of a customarily recognized department thereof; (3) who customarily and regularly direct the work of two or more other employees; and (4) who have the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given “particular weight.” 29 C.F.R. § 541.100(a).
The Court is without the necessary facts regarding the CO3 positions in this case to determine whether their status as non-exempt was clearly established and whether it should have been clear to Defendant Beard that a failure to categorize them as such was unlawful in the situation he confronted. The Court notes that Defendant Beard points to a number of factors that help to support his position that he acted reasonably. First, his position was consistent with the Commonwealth’s analysis that police lieutenants were exempt under the FLSA. (Doc. 18-4, Ex. A-2.) Additionally, the Commonwealth’s Office of Administration had classified the CO3 position as exempt from the FLSA for approximately 30 years. (Doc. No. 18-2, Ex. A ¶ 7.).
However, absent further factual evidence regarding the pay, duties, and administrative responsibilities given to the CO3s the Court is unable to determine “whether a right is clearly established [by] whether it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted.” Saucier, 533 U.S. at 202. Therefore, the Court will allow the parties limited discovery on the qualified immunity issue in order to assist the Court in making such a determination.
For the foregoing reasons, the Court finds that Defendant Beard does not have immunity in his official capacity. As a result, Defendant Beard’s motion on the pleadings as to Count I will be denied. As to Count II, the Court will allow the parties discovery in order to brief the Court as to whether Defendant Beard should be granted qualified immunity. “