Gray v. Powers

• Decision Date: 29 February 2012
• Docket Number: No. 10–20808.,10–20808.
• Parties: Nicholas GRAY, On Behalf of Himself and Others Similarly Situated, Plaintiff–Appellant, v. Michael Warren POWERS, Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

162 Lab.Cas. P 35,997

18 Wage & Hour Cas.2d (BNA) 1441

673 F.3d 352

Nicholas GRAY, On Behalf of Himself and Others Similarly Situated, Plaintiff–Appellant,

v.Michael Warren POWERS, Defendant–Appellee.

No. 10–20808.

United States Court of Appeals, Fifth Circuit.

Feb. 29, 2012.

Richard J. Burch (argued), Bruckner Burch, P.L.L.C., Robert R. Debes, Jr., Houston, TX, for Plaintiff–Appellant.

Christopher M. Cammack (argued), Cammack Law Firm, P.C., Houston, TX, for Defendant–Appellee.

Appeal from the United States District Court for the Southern District of Texas.Before JONES, Chief Judge, HAYNES, Circuit Judge, and CRONE, District Judge.^*EDITH H. JONES, Chief Judge:

Nicholas Gray sued his employer, Pasha Entertainment Group, L.L.C. (“PEG”), and one of its owners, Michael Warren Powers (“Powers”), for violating the minimum wage standards under the Fair Labor Standards Act (“FLSA”). Gray argued that as a member of this Texas limited liability corporation, Powers was an “employer” under the FLSA and was therefore personally liable for PEG's violations. The district court granted summary judgment to Powers, holding that he was not an employer under the FLSA. We AFFIRM.

BACKGROUND

In 2007, Powers, Christian Bruckner, and Richard Stark formed PEG to run the Pasha Lounge as an investment in Houston, Texas. Stephen Powers (“Stephen”) and Kathleen Powers (“Kathleen”) later joined the original members of PEG. Powers contributed about $100,000 and supervised remodeling of the nightclub. Stephen, Powers's brother, contributed as much as $80,000. A third member, Christian Bruckner, obtained the liquor license and personally guaranteed the lease of the building. PEG operated Pasha Lounge from April 2007 until the club closed in September 2008. Shortly after closing the nightclub, the members dissolved PEG.

After completion of the construction, Powers was not involved in the day-to-day operation of the Pasha Lounge. Powers only visited the club on five or six occasions during the seventeen months the club was open for business. He denies that he supervised any employee, defined employee job duties, controlled work schedules, or maintained employment records. During his rare trips to the lounge, the bartenders would tell him how much they made in tips. Powers was, however, a signatory on PEG's checking account, along with Kathleen and the club's general manager, and he occasionally signed several pages of pre-printed checks.

Other members, Kathleen in particular, were much more involved in the operation of the club. Kathleen kept the books, was a signatory on the accounts, received nightly numbers, and served as the point of contact for the general manager. The members of PEG collectively made significant business decisions such as hiring John W. Ritchey, Jr. as the first general manager. Ritchey's job duties included hiring and firing staff, handling promotions, setting operation hours, and supervising day-to-day operations. In Ritchey's words, he was “in charge of pretty much everything that went on at the club.” Ritchey was later removed by the members of PEG because his salary was too expensive.

Appellant Gray was a bartender at Pasha Lounge from February to September 2007 and replaced Ritchey as general manager from March to September 2008. Gray asserts that while he was a bartender under Ritchey's supervision, he and his fellow bartenders were not paid an hourly wage and were compensated solely by tips. Gray considered Ritchey to be his boss at that time because Ritchey hired him and defined his job duties. Though Gray asserts that Powers was another “supervisor,” Gray admitted in a deposition that Powers was not involved in the club's day-to-day operations. Powers rarely visited the club, but on one visit he did tell Gray that he was doing a “great job.” Also, on two occasions Powers asked Gray to serve specific people while Powers was a patron at the club. Beyond these three instances, Gray could not remember any other occasion when Powers “directed” his work as a bartender. Gray contends, however, that Powers asked him to fill in as general manager after Ritchey was let go. Stephen disputes that fact because he allegedly enlisted Gray to fill in as general manager.

The district court was not persuaded by Gray's argument that Powers was an FLSA “employer” and granted summary judgment. PEG suffered an adverse judgment when it failed to appear at trial. Gray now appeals the grant of summary judgment to Powers.

STANDARD OF REVIEW

This court reviews the district court's grant of summary judgment de novo. Williams v. Henagan, 595 F.3d 610, 615 (5th Cir.2010). “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The evidence should be viewed in the light most favorable to the non-moving party, and this court should “refrain from making credibility determinations or from weighing the evidence.” Deville v. Marcantel, 567 F.3d 156, 163–64 (5th Cir.2009) (quoting Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.2007)).

DISCUSSION

The FLSA requires “employers” to pay their employees a minimum wage. 29 U.S.C. § 206(a). Tipped employees must receive a wage equal to the minimum wage, though tips can be counted as a part of that wage as long as the employer pays the tipped employee a minimum of $2.13 per hour. 29 U.S.C. § 203(m)(1)-(2); 29 C.F.R. § 531.50(a). An “ ‘[e]mployer’ includes any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). The Fifth Circuit uses the “economic reality” test to evaluate whether there is an employer/employee relationship. See, e.g., Williams v. Henagan, 595 F.3d 610, 620 (5th Cir.2010); Watson v. Graves, 909 F.2d 1549, 1553 (5th Cir.1990). The test originates in the Supreme Court's holding that “economic reality” should govern the determination of employer status under the FLSA. Goldberg v. Whitaker House Coop., 366 U.S. 28, 33, 81 S.Ct. 933, 936, 6 L.Ed.2d 100 (1961). To determine whether an individual or entity is an employer, the court considers whether the alleged employer: “(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.” Williams, 595 F.3d at 620. In cases where there may be more than one employer, this court “must apply the economic realities test to each individual or entity alleged to be an employer and each must satisfy the four part test.” Graves, 909 F.2d at 1556.

Gray asserts that both PEG and Powers were his employers. The district court, using the economic reality test, disagreed as to Powers. Our application of the four-factor test to Powers confirms that the district court was correct.

1. Power to Hire and Fire Employees

While it is undisputed that Powers neither hired Gray as a bartender nor supervised him directly, Gray argues that as a member and officer of PEG, Powers inherently had the power to fire him. Powers and the other members of PEG together hired (and terminated) the general manager of the club collectively, and the general manager hired and supervised the bartending staff. Gray argues that Powers's ability to act collectively in regard to club management included the power to fire Gray as a bartender.

Appellant relies on the “joint employer” theory to support his position that a person can be an “employer” even without unilateral hiring and firing power. While the joint employer theory is a viable option in some cases, the Fifth Circuit has noted that “mere conclusory allegations and inferences are not sufficient to prove the required linkage. This court still must apply the economic realities test to each individual or entity alleged to be an employer and each must satisfy the four part test.” Graves, 909 F.2d at 1556 (emphasis added). The only evidence Appellant cites is the collective power the PEG members exercised to hire and fire general managers. But Powers's participation in a joint decision with co-owners of PEG proves nothing about whether Powers had the authority individually to control employment terms of lower-level employees.

Lacking specific facts that Powers played a role in hiring or firing lower-level employees, Appellant asks this court to infer such authority based on Powers's position as a member and officer of PEG. Appellant cites several cases in which officers and shareholders of corporations have been held liable as FLSA employers. Each case, however, involves defendants who exerted actual operational control from which a fact finder could infer power to hire and fire.¹ The common theme throughout these cases is that employer status may be appropriate where operational control coincides with one's position as a shareholder, officer, or owner. The cases do not suggest, however, that merely being an officer or shareholder subjects an individual to FLSA liability.² Like the First Circuit, we recognize that “individuals ordinarily are shielded from personal liability when they do business in a corporate form, and ... it should not lightly be inferred that Congress intended to disregard this shield in the context of the FLSA.” Baystate Alt. Staffing, Inc. v. Herman, 163 F.3d 668, 677 (1st Cir.1998). Given this understanding, a status-based inference of control cannot alone suffice to create a genuine fact issue whether Powers had power to hire and fire bartenders.

2. Supervision or Control of Employee Work Schedules or Conditions of Employment

The district court found that no reasonable jury could find that Powers supervised or controlled employee work schedules or conditions of employment. Appellant argues that because Powers and his fellow members of the L.L.C. hired the manager, they cannot escape duties they owe employees by...