CEO Held Personally Liable for the Company’s FLSA Violations

On March 10, 2014, the United States Supreme Court denied Catsimatidis’ petition of certeriori in the Irizarry v. Catsimatidis case. The grocery chain petioned the U.S Supreme Court after the United States Court of Appeals for the Second Circuit decided on July 9, 2013, that Catsimatidis should be held personally, jointly, and severally liable for wages owed to employees based on his general control over the company.

This case started when a class of current and former employees of Gristede’s supermarkets filed a class action in the United States District Court for the Southern District of New York against several corporate and individual defendants for alleged violations of the Fair Labor Standards Act (“FLSA“) and the New York Labor Law. Gristede is one of the 30-35 grocery stores operated and owned by John Catsimatidis. The parties had settled the FLSA claims, but the employees moved for partial summary judgment on the CEO’s personal liability after the corporate defendants defaulted on their settlement obligations. The district court granted partial summary judgment for the plaintiffs, concluding that John Catsimatidis, the owner, president, and CEO of Gristede’s, was the plaintiffs’ “employer” under both laws. Therefore, he was held jointly and severally liable for damages as an FLSA employer. Thereafter, Catsimatidis appealed the district court decision.

The Court of Appeals studied Catsimatidis’ arguments and used the “economic reality” test to determine whether an employer-employee relationship existed for purposes of the FLSA between Catsimatidis and Gristede’s employees. The determination of the employer-employee relationship does not depend on isolated factors such as where work is done or how compensation is divided. The Court of Appeals reiterated that “four factors have been established to determine the “economic reality” (Carter test) of an employment relationship: whether the alleged employer (1) had the power to hire and fire the 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.” The district court made the determination that the Catsimatidis hired managerial employees, signed class members’ paychecks, had the power to close or sell the stores, routinely reviewed financial reports, and generally presided over the day-to-operations of the company.
Besides, the Court of Appeals noted that: “there is no question that Gristede’s was the plaintiffs’ employer, and no question that Catsimatidis had functional control over the enterprise as a whole. (…) Although there is no evidence that he was responsible for the FLSA violations — or that he ever directly managed or otherwise interacted with the plaintiffs in this case — Catsimatidis satisfied two of the Carter factors in ways that we particularly emphasized in RSR: the hiring of managerial employees, and overall financial control of the company. (…) This involvement meant that Catsimatidis possessed, and exercised, “operational control” over the plaintiffs’ employment in much more than a “but-for” sense. His decisions affected not only Gristede’s bottom line but individual stores, and the personnel and products therein. We recognize that the facts here make for a close case, but we are guided by the principles behind the liquidated damages provision of the FLSA in resolving the impact of the totality of the circumstances described herein.”

The Court of Appeals concluded that Catsimatidis was an employer under the FLSA, but that further consideration of the state law issues was required. The Supreme Court declined to review the Court of Appeals’ decision making Catsimatidis personally liable as an employer under the FLSA.

If you are an employee and you believe your employer violated your rights under the FLSA, please contact the Harman Firm P.C.