Under the Fair Labor Standards Act (“FLSA”) and New York State Labor Law, an individual may be personally liable for unpaid wages if he or she is deemed an “employer.”^[1]  However, who is or is not an “employer” is not so easy to define. The discussion below highlights some of the problems that can arise when analyzing whether an individual is personally liable as an “employer” under the FLSA and New York Labor Law.

 ¹ In addition, although not the focal point of this article, an individual may be liable under New York Business Corporations Law §630, which provides that “[t]he ten largest shareholders... of every corporation... shall jointly and severally be personally liable for all debts, wages or salaries due and owing to any of its laborers, servants or employees... for services performed by them for such corporation.”  Liability under this statute, however, arises only after proper notice has been given and only where a judgment against the corporation has not been satisfied. 

Generally speaking, the FLSA broadly defines an “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.”^[2]  Similarly, the New York State Labor Law defines an “employer” as any person employing an employee “whether the owner, proprietor, agent, superintendent, foreman or other subordinate,”^[3] including “any person, corporation, limited liability company, or association employing any individual in any occupation, industry, trade, business or service.”^[4]  Caselaw has established that the standard for determining who is or is not an “employer” under the New York Labor Law is the same (and as broad) as the Second Circuit’s test applied under federal law.^[5]

 

THE SECOND CIRCUIT STANDARD UNDER HERMAN

In Herman v. RSR Sec. Serv. Ltd.,^[6] the Second Circuit articulated an “economic realities” test to be applied in determining “employer” status.  Among other things, the test considers four factors, including whether the individual (1) had the power to hire and fire employees; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained employment records.^[7]  The Second Circuit noted that no one factor alone is controlling, and the test encompasses the “totality of the circumstances.”^[8]  Because economic reality is determined in view of  “all the circumstances, any relevant evidence may be examined so as to avoid having the test confined to a narrow legalistic definition.”^[9]   The Second Circuit further stressed that “the Supreme Court has emphasized the ‘expansiveness’ of the FLSA’s definition of employer” and that “the remedial nature of the statute further warrants an expansive interpretation of its provision so that they will have ‘the widest possible impact in the national economy.’”^[10] As such, whether an individual is an “employer” under the FLSA is heavily fact-specific and difficult to assess with ease, even with the benefit of the Second Circuit’s guidelines under Herman.

 

WHO IS AN EMPLOYER

Clearly, under the economic realities test, an individual who is profoundly involved in the day-to-day operations of a company and supervises employee tasks and responsibilities is an “employer” for FLSA purposes.^[11]  In Moon v. Kwon, the president of a hotel actively participated in decisions involving the terms and conditions of the plaintiff-employee’s employment, including day-to-day job responsibilities, compensation, health care benefits and housing.^[12]   The court ruled that as such, he “hardly was a distant corporate officer” and thus, was liable as an “employer” under both federal and state law.^[13]  

 

However, most cases are not so cut and dry.  Because“[t]he overarching concern [under the economic realities test] is whether the alleged employer possessed the power to control the workers in question... control may be restricted, or exercised only occasionally, without removing the employment relationship from the protections of FLSA.”^[14]  Thus, even where the alleged employer appears not to have exercised any actual control over employees, he will not escape employer liability as a matter of law if he merely possesses the power to control employees.^[15]   For example, in Kaur v. Royal Arcadia Palace, an individual who had provided some start up capital to the business “did not hire, fire, direct, set schedules or wages for employees or maintain plaintiff’s employment records” and had visited the business less than five times.^[16]  On those facts, it would appear that the defendant would easily prevail on summary judgment since he did not meet a single factor of the economics realities test.  He had, however, been introduced to certain plaintiff-employees as an “owner” and had told some employees that he was their “manager” on his rare visits to the business.^[17]  The court ruled that the employees’ impression of him as a “manager” alone raised a question of fact as to “whether [he] maintained control over the staff that would qualify him as an employer” and denied summary judgment.^[18]  Simply stated, under Kaur, if the individual is labeled as a “boss,” he may be deemed to be a “boss.”            

 

WHO IS NOT (NECESSARILY) AN EMPLOYER

The Eastern District’s ruling in Kaur is somewhat troubling given, for instance, its previous decision in Chao v. Vidtape Inc.^[19] in which the court ruled that the father of the sole shareholder of a videotape marketing company was not an “employer” for FLSA purposes because the father did not give orders to fire, hire or set policies for employees, despite the employees’ impression of him as a “boss.”^[20] 

Other circuits, in particular the Eleventh Circuit, have reached similar conclusions in cases where the alleged employer, who may have possessed the power to control employees or gave the impression that he did, in fact did not exercise such control. Two Eleventh Circuit cases illustrate this point.  In Patel v. Wargo,^[21] the Eleventh Circuit ruled that the president, director and principal stockholder of the corporate defendant was not personally liable as an “employer” since he did not actually have “operational controls of significant aspects of [the company’s] day-to-day functions, including compensation of employees or other matter in relation to an employee.”^[22]  Because he “lacked the operational control necessary for the imposition of liability as an ‘employer’ under the FLSA,” it did not matter that the individual could have played a greater role if he so desired.^[23]

More recently in Perez v. Sanford,^[24] the Eleventh Circuit again ruled that to find personal liability under the FLSA, “an officer [of a company] must either be involved in the day-to-day operation or have some direct responsibility for the supervision of the employee.”^[25]  In Perez, the alleged employer was an officer, majority shareholder and the managing agent of a racetrack facility.^[26]  Although he was known as the “head boss,” his sons actually operated the business and they, not their father, had the ultimate authority over employees.^[27]  Specifically, the father was not involved in day-to-day operations, nor was he involved in the hiring and firing, compensation, or supervision of employees.^[28]  As in Patel, the court concluded, “[u]nexercised authority is insufficient to establish liability as an employer.”^[29]

The Eighth Circuit adopted a similar view in Wirtz v. Pure Ice, Co.,^[30] in which the owner had occasionally visited the business but “had nothing to do with the hiring and firing of the employees or the fixing of their wages or hours.”^[31]  The court specifically noted that although he was the “majority stockholder and dominant personality in [the corporation] and could have taken over and supervised the relationship between the corporation and its employees had he decided to do so.....a careful reading of the record, however, indicates that he did not do so.”^[32] Based on those facts, the court ruled, he could not be liable under the FLSA as an “employer.”

The holdings in Vidtape, Patel, Perez, and Wirtz discussed above are also consistent with the ruling in  Chan v. Triple 8 Palace, Inc.,^[33] in which the Southern District, in denying the plaintiffs’ summary judgment on the issue of employer liability, rejected the plaintiffs’ argument that an undisputed ownership share by an alleged employer “by itself rendered him an employer under the law,” where the individual did not regard himself as part of the management, could be fired for misconduct, and never made suggestions to the management regarding the restaurant’s operations.^[34]  In this regard, the court distinguished the facts of Triple 8 Palace from those of other cases where part-owners were also “agents of the owners, sat on the restaurant’s Board of Directors, and exercised substantial managerial authority over the day-to-day operations of the restaurant”^[35] or where the individual had the “‘full authority’ to suspend or terminate employees, supervised wait staff, made hiring decisions, and helped manage the restaurant’s budget, including payroll.”^[36]  As to other individuals alleged to be “employers” for FLSA purposes, the court emphasized that despite the plaintiffs’ recitation of employment duties held by such individuals (such as supervision of waiters and busboys, setting menu prices, and making hiring recommendations), the list did not “adequately explain how and to what extent these facts demonstrate that the [alleged employers] ‘possessed the power to control’ the plaintiffs,” which, as stated above, is the “overarching concern” in determining employer status.^[37]  

 

CONCLUSION