Last week, in Irizarry v. Catsimatidis, Docket No. 11-4035-cv (July 9, 2013), the Second Circuit held that Gristedes Foods CEO—and current NYC mayoral candidate—John Catsimatidis faces personal liability for settlement payments of FLSA claims against his company. The Court determined that Catsimatidis’ active participation in the operation of the company qualified him as an “employer” under the FLSA and could therefore lead to personal liability.

The settlement payments at issue in Irizarry stem from an FLSA class action lawsuit in the Southern District of New York against Gristedes for overtime pay. In September 2006, the court certified the class and, in December 2010, the parties reached a settlement agreement with Gristedes to make payments over 27 months. As Gristedes started to fall behind in payments, the plaintiffs sought to hold the grocer’s CEO, Castimatidis, personally liable for those settlement payments. The district court held that Catsimatidis could be held personally responsible for the payments because he acted as an “employer” under the FLSA and New York law. Catsimatidis appealed.

Catsimatidis argued that in order to be an “employer” under the FLSA, an individual must exercise decision-making in a “day-to-day” capacity, while his involvement in the company’s operation was only symbolic or ceremonial in character. The plaintiffs countered that Catsimatidis made chain-wide purchasing decisions, contacted vendors, visited a handful of stores on a weekly basis, frequently made suggestions about sales and merchandising to individual store managers, and discussed customer complaints with individual employees.

The Second Circuit explained that the question of whether Catsimatidis was an “employer” under the FLSA must be determined by looking at the “economic realities” of his position at the company, including whether there was “evidence showing his authority over management, supervision, and oversight of [Gristede’s] affairs in general,” as well as evidence reflecting Catsimatidis’s exercise of direct control over the plaintiff employees. Applying these considerations, the Court found that the evidence of Catsimatidis’ activities as chairman, president, and CEO of Gristedes, which included handling real estate, banking, financial, merchandising, vendor, and government relations issues, among others, demonstrated that he had functional control over the enterprise as a whole. In addition, Catsimatidis was responsible for the hiring and supervision of managerial employees, had overall financial control of the company, including ultimate responsibility for the plaintiffs’ wages, and engaged in occasional oversight activities at individual stores. Based on these factors the Second Circuit concluded that Catsimatidis “possessed, and exercised, ‘operational control’ over the plaintiffs’ employment for purposes of determining whether he was an ‘employer’.”

Recognizing that it was a close case, the Court concluded that the FLSA’s remedial purpose allowed Catsimatidis to be held personally liable as an “employer” even though there was no evidence that he was responsible for the FLSA violations which formed the basis for the settlement.

The holding in Irizarry is a cautionary tale to business owners and high-level managers.  Although taking a hands-on approach to managing a large-scale business can be absolutely critical to its success, such management activities may expose individuals to a very real risk of personal liability as an “employer” under the FLSA.