Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. If you're a business owner or corporate executive, be aware that your company's structure is not always enough to shield you personally from legal claims against the business. In one recent case, a grocery store owner found out the hard way that his direct, although limited, involvement in the company's operations rendered him individually liable when employees filed a lawsuit. Continue reading for details of the case and some guidance on this important matter.

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When Is an Executive Personally Liable
for Claims Against a Business?

2. Business owners and executives help to shield themselves from personal
liability by operating as a corporation or limited liability company. This
provides protection from exposure in certain legal disputes. However, as one
recent court ruling illustrates, an owner or executive can be held individually
responsible for unpaid overtime pay under the federal Fair Labor Standards
Act (FLSA).
How employees are classified -- as exempt or non-exempt -- is not a decision
to be taken lightly. Depending on the details of the job, it could mean the
difference between workers getting paid for overtime hours or not. If the
answer is not clear-cut and if the employees in question suspect they are
underpaid, businesses could find themselves embroiled in a lawsuit.
In one recent court ruling, grocery store employees took their employer to
court, suing both the corporation and the CEO. After years of litigation, a
ruling was handed down in early July in the U.S. Court of Appeals for the 2nd
Circuit.
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3. Facts of the Case
John Catsimatidis is the chairman, president and CEO of a small chain of
grocery stores named Gristedes in the New York city metro area. Collectively,
Gristedes employs about 1,700 workers.
A group of current and former employees filed a class action case against
Gristedes under the FLSA and New York state labor laws claiming they were
misclassified as exempt, and therefore, were not paid for overtime work.
The employees sought back wages, liquidated damages and attorneys' fees.
They also asserted that Catsimatidis should be held personally liable for
damages -- to the tune of $3.5 million.
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4. Not a Defendant 'In Name Only'
The case is somewhat unusual because although business owners and
corporate executives may be named as defendants in wage and hour lawsuits
filed by employees, they are generally not personally liable for payment of
legal judgments or settlements.
The trial court in September 2011 agreed with plaintiffs that Catsimatidis was
"jointly and severally liable" along with other corporate defendants.
Catsimatidis appealed.
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5. In an amicus brief, the Department of Labor asserted "it is crucial to effective
enforcement of the FLSA that, in addition to the companies that employ
employees, individuals who act as employers be held personally liable for
violations of the FLSA. Employees who are owed back wages, liquidated
damages, and attorney's fees and costs should not be denied recovery of
those amounts when the company, for whatever reason, is not able to pay
the judgment.“
The appellate court affirmed the trial court's ruling "in so far as it established
that Catsimatidis was an employer under the FLSA," but sent back to the
lower court the issue of how this plays out in New York state labor law.
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6. Reliance on Supreme Court
The appeals court relied on an earlier Supreme Court ruling that held the
determination of whether an employer-employee relationship exists for
purposes of the FLSA "should be grounded in economic reality rather than
technical concepts."
According to the appeals court: "The 'economic reality' test applies equally to
whether workers are employees and to whether managers or owners are
employers.“
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7. So how do you determine the "economic realities" of whether an owner is
also personally an "employer" because he or she is involved in some of the
day-to-day aspects of running a business? The appeals court in this case cited
factors including that Catsimatidis:
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• Made employment decisions for his direct reports;
• Dealt on a regular basis with banking, real estate and finance matters;
• Worked from the corporate office nearly every day;
• Developed merchandising ideas;
• Visited stores and suggested to managers how they could improve
merchandising; and
• Personally promoted employees.

8. 'Economic Reality' Test
The court boiled down its "economic reality" test to the following factors.
Does the owner:
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1. Have the power to hire and fire employees?
2. Supervise and control employees' work schedules?
3. Determine the rate and method of compensation?
4. Maintain employment records?

9. Although Catsimatidis only exercised his authority with respect to the first
and third factors, it was sufficient, in the Court's view, to hold him personally
responsible for ensuring the awarded damages were paid.
"The 'economic reality' test encompasses the totality of circumstances, no
one of which is exclusive," the Court held. (Irizarry v. Catsimatidis, Docket No.
11-4035-cv, 7/9/13)
The case serves as an important reminder that if you are directly involved in
key aspects of a business, you may be personally on the hook -- even if
unbeknownst to you --the company is engaging in illegal labor practices.
Being in charge of the big picture and exercising general oversight of
operations may not protect you from personal liability.
To help protect yourself, perform regular audits of your payroll practices to
ensure that employees are properly classified and compensated for all hours
worked.
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