Case study: Fair Labor Standards Act violation proves costly for business owner

It is important to train supervisors and managers so they know the minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA) and when to report employee concerns and complaints.  This is the key to avoiding costly fines for the company AND its executives.

Nearly all employers are subject to the requirements of the FLSA, and the potential penalties for violations can be costly.

Case study against NY supermarket chain

Case in point is a wage-and-hour lawsuit against Gristede’s Foods, Inc. in which the company’s owner has been held personally liable for payments to employees in the case.

The New York supermarket conglomerate employed approximately 1,700 employees.  In 2004, a group of Gristede’s employees filed a class/collective action lawsuit alleging that the company failed to pay overtime under the FLSA.  The employees prevailed, and the parties entered into a multi-million-dollar settlement.

When Gristede defaulted on its payment obligations under the settlement agreement, the employees asked the U.S. District Court for the Southern District of New York to hold John Catsimatidis, the long-time owner, chairman and CEO of the company, personally liable for the payments.  The district court granted the employees’ request.

Catsimatidis appealed to the 2nd U.S. Circuit Court of Appeals, but the appellate court upheld the lower court’s decision, ruling that Catsimatidis was an employer under the FLSA and could be held personally liable for violations of the Act.

Owning company was active in running day-to-day

The 2nd Circuit Court made this decision regardless of the fact that Catsimatidis managed employees at a very high level.  For example, he wasn’t typically involved in the day-to-day operations of individual supermarkets.  He didn’t hire or fire most employees or set specific wages or schedules, and he had only limited interaction with the managers who handled those types of decisions.  It also didn’t matter that Catsmatidis wasn’t accused of making decisions that violated the FLSA.

Rather, the court concluded that Catsimatidis was an employer and he was active in running the company.  This included having contact with individual stores, employees, vendors, and customers and supervision of certain managerial personnel such as the chief financial officer and the chief operating officer.  The ruling concluded that this gave him ultimate responsibility for employees’ wages and signed paychecks.

In early December 2013, Catsimatidis petitioned the U.S. Supreme Court to hear the case and overturn this ruling of personal liability.  At this time, it is not known if the high court will hear the case.

With court decisions like these, corporate officers should be more motivated than ever to ensure that their companies and agencies are in compliance with the FLSA’s requirements.  Now is a good time to review and update your policies to ensure that employees understand their obligation to accurately report all time worked.  Contact BCN Services if you need to consult on any FLSA matters.

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Sue Kester, HR Manager

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