Court finds CEO personally liable for overtime pay violations

On July 9, 2012, the Second Circuit held that a CEO of a supermarket chain could be personally liable for FLSA claims made by employees of his company. See Irizarry v. Catsimatidis, Docket No. 11-4035-cv (2d Cir. July 9, 2013). The FLSA requires most employees to be paid one-and-a-half times their “regular rate” of pay for every hour worked in excess of forty in any week. The FLSA states imposes liability for unpaid overtime on an “employer,” without providing much guidance as to the meaning of this term. Thus, courts, most recently the Second Circuit in Irizarry, have been called on to decide whether owners or supervisors of companies qualify as “employers” under the FLSA and thus are subject to individual liability for unpaid overtime claims.

In Irizarry, current and former employees of the grocery chain, Gristedes, filed a FLSA collective action lawsuit in the Southern District of New York against Gristedes for overtime pay. In September 2006, the court certified the class, and in December 2010, the parties settled the case, with Gristedes agreeing to make monthly payments. When Gristedes failed to make its agreed-upon monthly payments, the plaintiffs sought to hold the grocer’s CEO, Castimatidis, personally liable for those unpaid overtime payments. The district court held that Catsimatidis could be held personally responsible for the payments because he acted as an “employer” under the FLSA and New York law. Catsimatidis appealed.

Catsimatidis argued that he could not qualify as an “employer” under the FLSA, because he did not exercise decision-making in a “day-to-day” capacity, and that his involvement in the company’s operation was only symbolic or ceremonial in character. The plaintiffs countered that Catsimatidis made chain-wide purchasing decisions, contacted vendors, visited a handful of stores on a weekly basis, frequently made suggestions about sales and merchandising to individual store managers, and discussed customer complaints with individual employees.

The Second Circuit explained that the question of whether Catsimatidis was an “employer” under the FLSA must be determined by looking at the “economic realities” of his position at the company, including whether there was “evidence showing his authority over management, supervision, and oversight of [Gristede’s] affairs in general,” as well as evidence reflecting Catsimatidis’s exercise of direct control over the plaintiff employees. Applying these considerations, the Court found that the evidence of Catsimatidis’ activities as chairman, president, and CEO of Gristedes, which included handling real estate, banking, financial, merchandising, vendor, and government relations issues, among others, demonstrated that he had functional control over the enterprise as a whole. In addition, Catsimatidis was responsible for the hiring and supervision of managerial employees, had overall financial control of the company, including ultimate responsibility for the plaintiffs’ wages, and engaged in occasional oversight activities at individual stores. Based on these factors the Second Circuit concluded that Catsimatidis “possessed, and exercised, ‘operational control’ over the plaintiffs’ employment for purposes of determining whether he was an ‘employer’.”

The Second Circuit further determined that the FLSA’s remedial purpose allowed Catsimatidis to be held personally liable as an “employer” even though there was no evidence that he was responsible for the unpaid overtime violations which formed the basis for the FLSA overtime settlement.

This case demonstrates that, at least in the Second Circuit, the “corporate shield” that generally protects owners of corporate entities from personal liability may not preclude such liability for unpaid overtime claims.

 About the author: Josh Borsellino is a Texas attorney that focuses on unpaid overtime litigation.  If you have questions regarding unpaid wages or overtime pay, call Josh Borsellino at 817.908/.9861 or fill out our online form for a free evaluation of your legal matter.