A recent New Jersey District Court decision serves as a sharp reminder that job titles and pay structures alone don’t determine exemption status. An employer learned this the hard way by facing personal liability for nearly $2 million in damages for misclassifying workers and failing to pay timely wages.
In Lustig v. Daniel Markus, Inc., the United States District Court for the District of New Jersey ruled that a collective class of pawn shop employees were entitled to summary judgment on their minimum wage and overtime claims, as the employer misclassified employees as “exempt.”
The Court found that the employees, who performed predominantly menial tasks but were all give managerial titles, did not qualify for the executive, administrative, or commissioned retail sales exemptions asserted by the employer. The Court also found that the employer timely failed to pay employees and arbitrarily reduced their pay. Crucially, the Court found that the Managing Director of the employer, Daniel Risis, was an employer within the meaning of the Fair Labor Standards Act (“FLSA”) and individually liable to the employees.
Background
The employer operated multiple pawn shop locations in New Jersey. One employee brought a collective action alleging the company and its owners withheld wages and misclassified him and other employees in violation of the FLSA and the New Jersey Wage and Hour Law (“NJWHL”). The employees contended their primary duties were organizing shelves, cleaning the store, transacting with customers, and sweeping floors. The employees testified they were required to work weeks without receiving compensation and were wrongly misclassified as exempt from eligibility for overtime pay. Additionally, there was evidence on the record that the employer admitted to payroll infractions and Mr. Risis was aware of the impropriety of its conduct.
As to the employees’ claims for overtime pay, the District Court found that none of the employees could be correctly classified under the executive, administrative, or professional exemptions based on their duties. The employees did not primarily perform non-manual work directly relating to management of the company and did not have hiring or firing authority. The Court also found the employees did not work in an advanced field. Ultimately, the District Court held the employees were not exempt from overtime requirements and granted summary judgment on the overtime claims.
For the employee’s minimum wage claims, the District Court found that there was specific facts and evidence the employees were subject to both nonpayment and delayed payment of wages and granted summary judgment on the minimum wage claims after review of payroll documents, declarations from the employer’s former CFO, and Mr. Risis’s own admissions.
In evaluating whether Mr. Risis, the Managing Director of the employer, could be held personally liable as an “employer” under the FLSA and NJWHL, the court applied the Enterprise test used by the Third Circuit. This test considers factors such as whether the individual:
- Had the power to hire and fire employees;
- Had authority to set work assignments and conditions, such as hours and compensation;
- Day-to-day oversight; and
- Maintained employment records.
The Court concluded that Mr. Risis satisfied these criteria. The evidence showed that Mr. Risis personally hired and directed employees, including the plaintiff, set employee schedules and adjusted salaries, was the primary person responsible for managing the business, and had authority to run the company the way he chose. Therefore, the Court found he was personally liable. Based on the violations by the employer, the Court found that due to the failure to keep adequate employment records, payroll violations, and unpaid overtime, the Court awarded the employees $958,000 in damages and an additional $958,000 in liquidated damages, as well as attorneys’ fees, but declined to grant treble damages and prejudgment interest under the NJWHL. As Mr. Risis was deemed an employer, he was liable for the nearly $2 million judgment along with the company.
Key Takeaways
- Titles don’t control, duties do. Merely calling an employee a “manager” or paying a salary does not establish an exemption. Employers must examine the employee’s actual daily functions against regulatory criteria.
- Documentation matters. Detailed, contemporaneous records of job duties, hours worked, and pay structure remain an employer’s best defense. Absent such records, courts will accept the evidence submitted by the employees when awarding damages.
Lustig v. Daniel Markus, Inc. stresses that employee classification and wage compliance are increasingly risky areas for business owners and individual managers who can be personally liable for business faults. Employers should consider seeking legal guidance before determining employee classification and keep detailed payroll and wage records, as violations of the FLSA and NJWHL carry harsh penalties that can even trigger personal liability.
Please contact an NFC team member if you have any questions or seek further assistance.