On October 12, 2012, nine legal and workers’ rights organizations urged the Court of Appeals for the Second Circuit to label John Catsimatidis, the owner and CEO of New York City grocery chain Gristedes Foods Inc., an “employer” under the Fair Labor Standards Act (“FLSA”) which would make him personally, jointly and severally liable for a $3.5 million overtime class action settlement.
The suit against Gristedes dates to 2004, when Carlos Torres filed a class action seeking damages on behalf of hundreds of former co-managers and department managers of Gristedes. The parties agreed to a settlement on the eve of trial and in December 2010, the court approved the settlement. Gristedes had trouble paying the settlement. In September 2011, the Southern District of New York ruled that Mr. Catsimatidis was individually responsible for the settlement payments. The District Court reasoned that Congress specifically created an expansive definition of “employer” in the FLSA that included both entities and individuals. The FLSA defines the word “employer” broadly to include “any person acting directly or indirectly in the interest of an employer in relation to any employee.” 29 U.S.C. § 203(d). “Person” includes individual, so that individuals may be held liable or responsible for violations of the law by a corporate employer. Id. at § 203(a). As a result, the traditional requirements for piercing the corporate veil are not required to establish individual liability under the FLSA.
The District Court found that Gristede’s unlawfully “sought to treat workers as ‘hourly’ for some purposes (e.g, docking them for hours not worked during the workweek), but ‘salaried’ for other purposes (e.g., not paying them overtime for hours worked in excess of the workweek).” The Court also gave particular credence to the following undisputed facts reflecting Mr. Catsimatidis’ “absolute control” over the company: (1) he is the sole owner, President and CEO of Gristedes; (2) he owned the company for 20 years; (3) he has the authority to open and close stores; (4) he can set prices for goods offered for sale; (5) select the décor for the stores; (6) control any store’s signage and advertising; (7) he could declare bankruptcy; and, (8) he could provide the personal signature necessary for a bank letter of credit to be issued in favor of Gristedes.
Mr. Catsimatidis appealed to the Circuit Court to overturn the decision arguing that his deputies handle the day-to-day operations of the company and that allowing the ruling to stand would lead to unwarranted individual liability for executives at corporations where middle management make the operational, day-to-day calls. In response, the workers’ rights organizations argued in their brief that Mr. Catsimatidis exercised “more than enough operational control over the chain to hold him personally liable for the company’s labor violations.”
The Court is expected to issue its decision on the appeal in early spring. We will continue to follow the case and keep you posted. Although individual liability under the FLSA is not a new concept, this case stands out because if the CEO of such a large, high profile company is held liable for how his company classified low-level management for overtime purposes (i.e. “exempt” or “non-exempt”), then owners and business executives should re-evaluate the extent to which they solely rely on their human resource departments to determine employee status under the FLSA. Additional oversight may be warranted where an individual may face personal liability.