Restaurant Owner Liable for $478,000 as Employer Under FLSA

By Kenneth J. Diamond November 1, 2017
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Restaurant Owner Liable for $478,000 as Employer Under FLSA

​A restaurant's owner was deemed an employer and thus jointly and severally liable in the amount of approximately $500,000 for violation of the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL), a New York federal district court judge ruled.

In 2015, five former restaurant employees filed suit against the restaurant and its owners. The court dismissed one owner on the ground that she was not an employer under the FLSA or the NYLL but denied the other owner's effort to be dismissed. As to that owner, the court explained that the FLSA defines "employer" as "any person acting directly or indirectly in the interest of an employer in relation to an employee." In resolving who is an employer, "the overarching concern is whether the alleged employer possessed the power to control the workers in question."

In concluding that the owner was an employer, the court applied the "economic reality" test and reviewed whether he:

  • Had the power to hire and fire the employees.
  • Supervised and controlled work schedules or conditions of employment.
  • Determined the rate and method of payment.
  • Maintained employment records.

The evidence at trial showed that the owner was closely involved in the restaurant's operations, including by spending significant time there and hiring employees, directing their work and paying their wages.

While the FLSA has a two-year limitations period (three years where there is a willful violation), the NYLL limitations period is six years. Under both statutes, liquidated damages equal 100 percent of the underpayments found to be due.

The court concluded the employees were nonexempt (and thus entitled to overtime), and, in underpaying wages owed, the restaurant and its owner lacked a good-faith basis to believe that they were complying with the FLSA and the NYLL. Among other things, the owner acknowledged the employees were paid fixed weekly salaries regardless of hours worked. The restaurant did not have supporting records showing hours worked or amounts paid, and the court found the employees' testimony and related evidence on these topics credible.

[SHRM members-only toolkit: Complying with U.S. Wage and Hour Laws and Wage Payment Laws]

While the employees sought liquidated damages under both the FLSA and the NYLL, the court stated the "weight of authority" supported a single award of liquidated damages for six years under the NYLL. As the owner was an employer throughout that time, he was jointly and severally liable for the entire amount awarded, which, with liquidated damages and penalties, was $478,000 plus interest and attorney fees.

Pineda v. Frisolino Inc., S.D.N.Y., No. 15-03774 (Aug. 29, 2017).

Professional Pointer: This case illustrates how an individual business owner can be deemed an employer for wage and hour violations under federal and state law. While ownership alone is not enough, when an owner is actively involved in human resource decisions, individual liability may result, as happened here.

Kenneth J. Diamond is an attorney with Winterbauer & Diamond PLLC, the Worklaw® Network member firm in Seattle.

 

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