Individual Owner of Successor Employer May be Liable for Minimum Wage Violations Committed by Predecessor Employer

In Battino, et al. v. Cornelia Fifth Avenue LLC, a case pending in the United States District Court for the Southern District of New York, the court recently held that the individual owner of a company that purchased the assets of another company might be held liable for minimum wage violations committed by the seller. This case highlights the limits of limited liability protections afforded individuals, who are shareholders of corporations or members of limited liability companies, for minimum wage and overtime violations.

The basic facts in Battino are that Cornelia Fifth Avenue LLC, which operated the Cornelia Day Resort, a spa in New York City, failed to pay most of its employees any salary, wages or commissions for approximately two months prior to the sale of the spa to Spa Chakra LLC. Following the sale of the spa, we represented approximately 62 of those employees in a civil action to recover the owed wages that were never paid. We sued Spa Chakra LLC and its individual owner, Canizales. In addition, we sued the individual owners of Cornelia Fifth Avenue LLC. Both Cornelia Fifth Avenue’s individual owners and Spa Chakra LLC filed for bankruptcy protection, which prevented us from pursuing claims against them for unpaid wages. Canizales, who did not file for bankruptcy protection, filed a motion for summary judgment, claiming that he could not be personally responsible for the minimum wage violations committed by Cornelia Fifth Avenue LLC, and its individual owners.
The court rejected Canizales’ argument, finding that there were issues of fact concerning the following:
(1) Whether the successor company had notice of the charge or pending lawsuit prior to acquiring the business or assets of the predecessor; (2) the ability of the predecessor to provide relief; (3) Whether there has been a substantial continuity of business operations; (4) Whether the new employer uses the same plant; (5) Whether he uses the same or substantially the same work force; (6) Whether he uses the same or substantially the same supervisory personnel; (7) Whether the same jobs exist under substantially the same working conditions; (8) Whether he uses the same machinery, equipment, and methods of production; and (9) Whether he produces the same product.
Furthermore, the court held that not only could Spa Chakra LLC be liable for the minimum wage violations, but its individual owner, Canizales, could also be held liable because under the Fair Labor Standards Act, he could also be considered an “employer.”

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