In a case that is every CEO’s nightmare, Irizarry v. Catsimatidis, the U.S. Court of Appeals for the Second Circuit affirmed a district court decision holding the owner, President, and CEO of a grocery store chain was an “employer” for purposes of the Fair Labor Standards Act and, therefore, could be held personally liable for the company’s FLSA violations.
The case arose out of a class action by current and former department managers and co-managers who sued a grocery store chain and several of its high level executives, including its CEO, alleging, among other things, they had been misclassified as exempt employees and were entitled to overtime compensation. After over two years of litigation, the court granted summary judgment to the employees, who reserved the right to move separately for a determination that the individual defendants were individually liable as joint employers. The parties then entered into a settlement agreement, which the court approved. When the company subsequently defaulted on its payment obligations under the settlement agreement, the plaintiffs moved for summary judgment on the issue of whether the CEO could be held personally liable for damages as an “employer” under the FLSA. In opposition, the CEO argued that he was a high-level employee who made symbolic or generalized decisions that did not directly affect the plaintiffs or were made only through the corporate chain of command. The district court rejected this argument and granted the plaintiffs’ motion.
On appeal, the Second Circuit affirmed the district court’s conclusion that the CEO was an “employer” for purposes of the FLSA. In analyzing the issue, the Second Circuit held that the fact that a person is an officer or owner of a company, or otherwise makes corporate decisions that have nothing to do with an employee’s terms and conditions of employment is insufficient to establish that person is an “employer” under the FLSA. Instead, the individual must possess control over a company’s actual operations and directly affect the nature and conditions of employment. The court found that in this case there was “no question that [the CEO] had functional control over the operation as a whole.” He was active in running the company, as demonstrated by his regular, weekly contacts with individual stores, vendors, employees, and customers, and his occasional, if not frequent, involvement in merchandising at the store level. He addressed customer complaints and played a role in the promotion of key employees. Although there was no evidence that he was responsible for the FLSA violations, the fact that he hired managerial employees who, in turn, created and enforced company policy, and that he had overall financial control of the company, including overall employee compensation, was sufficient to render him an employer for purposes of the FLSA.
CEOs and other high level executives of large corporations should not despair, however. As the Second Circuit itself pointed out, this was a “close case.” The size and the nature of a business play a role in cases regarding individual liability for FLSA violations. Although the corporate defendant in this case was larger than most of the businesses in which high level corporate officers have been found individually liable, the Second Circuit concluded it “was not so large as to render [the CEO’s] involvement a legal fiction.” All of the company’s stores were in the New York City metropolitan area, close to the company headquarters, where the CEO worked, and the company was privately held. Nevertheless, this case is a good reminder that high level company executives who have operational responsibility for a company should be mindful of the company’s compliance with the FLSA, as well as other laws.