The Second Circuit on Tuesday affirmed that the owner of New York City grocery chain Gristedes Foods Inc. could be held personally liable as an “employer” under the Fair Labor Standards Act in a $3.5 million overtime class action settlement, as he was heavily involved in running the business.
Although the panel noted there is no evidence showing longtime Gristedes owner, President and CEO John Catsimatidis is personally liable for the FLSA violations alleged in the suit, the appeals court determined he could be held liable under the federal employment law because he personally profited from them and exercised enough control over the grocery store chain to meet FLSA's definition of an employer.
“There is no question that Gristedes was the plaintiffs' employer, and no question that Catsimatidis had functional control over the enterprise as a whole," the decision said. “His involvement in the company's daily operations merits far more than the symbolic or ceremonial characterization he urges us to apply.”
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“A person exercises operational control over employees if his or her role within the company, and the decisions it entails, directly affect the nature or conditions of the employees' employment,” the decision said. “Although this does not mean the individual 'employer' must be responsible for managing plaintiff employees — or, indeed, that he or she must have directly come into contact with the plaintiffs, their workplaces or their schedules — the relationship between the individual's operational function and the plaintiffs' employment must be closer in degree than simple but-for causation.”
In September 2011, a New York federal court ruled that Catsimatidis was individually responsible for the settlement payments to some 500 department managers after the chain claimed it lacked the funds to continue paying out.
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The class was certified in September 2006, and the parties agreed to a settlement on the eve of trial in June 2009. Negotiations continued for more than a year, and in December 2010, the court approved a $3.5 million settlement to be doled out with $425,000 upfront, followed by 27 monthly payments.
Gristedes has since had trouble paying the settlement and in July asked the court to modify the terms of the deal, saying it had recently incurred significant losses and that the settlement payments had put the company in arrears.
Shortly thereafter, U.S. District Judge Paul A. Crotty said that if Gristedes was not going to pay the settlement costs, Catsimatidis would have to pick up the slack.
Several nonprofit groups had urged the Second Circuit in October to label Catsimatidis as an employer under the FLSA, claiming that upending the ruling and clearing Catsimatidis of responsibility would undermine the “broad remedial nature” of the FLSA and make it easier for corporate defendants to dodge court-mandated settlement payments in the future.
Although the panel upheld the FLSA portion of the summary judgment decision, it vacated the lower court's decision that Catsimatidis could be considered an employer under state law as it wasn't justified in the ruling.
The appellate panel ordered the lower court to consider whether it must resolve the labor law issues, or if it can move forward and determine damages without that portion of the case.
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U.S. Circuit Judges Richard C. Wesley and Peter W. Hall and Senior Judge Richard W. Goldberg of the U.S. Court of International Trade sat on the panel for the Second Circuit.
The class is represented by Adam T. Klein of Outten & Golden LLP.
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The case is Carlos Torres et al. v. Gristedes Operating Corp. et al., case number 11-4035, in the U.S. Court of Appeals for the Second Circuit.