Header graphic for print
Wage & Hour Law Update

Fifth Circuit: Nightclub Part Owner’s Theoretical “Control” Insufficient to Render Him an Employer

While courts analyzing whether or not an individual can be liable as an “employer” under the FLSA generally agree that the appropriate standard should be the “economic realities” of the employment scenario, consensus largely concludes there. While courts focus on whether the individual: (1) possessed the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records, there is a lack of clarity as to whether the alleged individual employer must take an active role in the activities set out by the test, or simply possess the authority to do so (whether exercised or not). In a new opinion, the Court of Appeals for the Fifth Circuit has joined those courts holding that such unexercised authority on the part of an owner does not make that individual an employer under the FLSA. Gray v. Powers, 2012 U.S. App. LEXIS 4111 (5th Cir. Feb. 29, 2012).

In Powers, Defendant Powers was a part owner of the nightclub where Plaintiff Gray was employed, and had supervised the remodeling of the club before it opened. In Plaintiff Gray’s FLSA lawsuit, he sought to hold Powers liable along with the corporate entity that operated the club. Although Plaintiff “admitted in a deposition that Powers was not involved in the club’s day-to-day operations” and rarely visited it, he nevertheless alleged that Powers controlled his employment because he was an owner who “on one visit he did tell Gray that he was doing a ‘great job’ [and] . . . on two occasions . . . asked Gray to serve specific people while Powers was a patron at the club.”  He further contended that Powers asked him to fill in as general manager after the prior general manager was terminated.

In affirming the dismissal of the claims against Powers on summary judgment, the Court rejected “a status-based inference of control” based on Powers’ position as an officer, and further observed that the “isolated events [of interaction with Powers were] too paltry to support an inference of control.” Since Powers did not set wage rates or maintain records (the third and fourth factors of the economic realities test), he was properly found not to be an “employer.” Id. at * 7-13. 

Powers is a victory for employers, as the court recognized that the FLSA does not create unfettered license to pierce the corporate veil and reach individual owners of businesses in wage lawsuits. However, individual liability continues to create potential exposure to business owners, even within the jurisdiction of the Fifth Circuit.