Southern District of New York Holds that Issue of “Covered Employer” Wage and Hour Liability Not Yet Ripe for Summary Judgment

Alvarez v. 40 Mulberry Rest. Inc., d/b/a Asia Roma, Asia Roma, Inc., Peter Chin, Mei Chan, and David Lee, No. 11-CV-9107(PAE) (S.D.N.Y. Oct. 3, 2012, Engelmayer, J.): The plaintiff sued his alleged former employers for violations of the Fair Labor Standards Act (FLSA) and New York Labor Law. Only two of the named defendants (40 Mulberry and Peter Chin) answered the complaint in this lawsuit and subsequently moved for summary judgment. The two appearing defendants asserted that they never employed the plaintiff, they are not successors in interest to any entity or person that did, and that they cannot be sued pursuant to the FLSA because they did not earn sufficient sales for the plaintiff to be a “covered employee” under the FLSA. In response, the court held that the financial condition and sales of the predecessor restaurant was not a dispositive issue in determining liability, and instead gave the parties one month to conduct discovery on the determinative issues of: (1) whether the preceding employer was a qualifying “enterprise engaged in commerce” when employing Alvarez; and (2) whether 40 Mulberry and Chin are “answerable” for the defaulting party’s liability. The court denied summary judgment as to the issue of whether 40 Mulberry and Chin were successors in interest because the plaintiff presented evidence that 40 Mulberry’s successor restaurant shared similar characteristics to Asia Roma, including the space, menu, personnel, equipment, trade name, website, and Facebook page, which raised an issue of fact as to both the traditional common law or the substantial continuation tests for successor liability.

The decision shows that, to avoid liability as an employer under the FLSA or New York law, a company must ensure that it keeps its operations and paperwork sufficiently separate from previous entities to prevent successor liability.