“Individual liability.” It’s an ugly phrase that should be avoided in civilized conversation, especially among business owners and company executives. The Second Circuit sent a chilling reminder this week about that unpleasant prospect that should make employers and business owners pay attention: In Irizarry v. Catsimatidis (here), the court held that the CEO of the Gristede’s grocery chain is personally liable for $3.5 million of unpaid wages under the FLSA.
Although it is not unusual for business owners or high-ranking company executives to be named individually as defendants in wage and hour lawsuits, such executives are typically defendants in name only, and are rarely held personally responsible for payment of judgments or settlements. In Irizarry, however, the Second Circuit held that the company’s CEO, John Catsimatidis (currently a candidate for Mayor of New York City) is an “employer” because of the level of operational control he exercised over Gristede’s. As a result, the court held that he was personally, jointly and severally liable for unpaid amounts owed to plaintiffs under an FLSA settlement agreement – even though he was not “personally responsible for the FLSA violations” — because he “nonetheless profited from them.”
Gristede’s operates 30 to 35 stores with approximately 1,700 employees. Although the Second Circuit recognized that the company is large, it is not so large that Catsimatidis is unable to influence day-to-day management decisions. More specifically, the court said that Catsimatidis:
- Works in the corporate office almost daily;
- Deals regularly with banking, real estate, and finance;
- Develops merchandising concepts;
- Visits stores to provide thoughts on how managers can improve merchandising;
- Makes hiring and firing decisions for high-level employees who report directly to him; and
- Has personally promoted employees.
As the Second Circuit noted, the FLSA’s definition of “employer” is unhelpful because it relies on the word to define the word: “Employer includes any person acting directly or indirectly in the interest of an employer in relation to an employee.” For this reason, the court looked to four factors to determine if the “economic reality” supports a finding that Catsimatidis is an “employer”:
- Did he have the power to hire and fire employees?
- Did he supervise and control employee work schedules or conditions of employment?
- Did he determine the rate and method of payment?
- Did he maintain employment records?
Although only the first and third factors applied to Catsimatidis, the court concluded, based on the totality of the circumstances, that he exercised sufficient control to be personally on the hook for settlement payments to the plaintiffs.
The facts of Irizarry are certainly not typical of large employers, and the Second Circuit’s decision focused closely on the specific facts of Gristede’s and Catsimatidis. Nonetheless, the case leaves open the possibility that the level of operational control this CEO exercised is not the floor for individual liability in other cases. While business owners and executives need not panic, the case highlights yet another reason why companies should be proactive in assessing their wage and hour compliance.