Opinion
Civil Action 17-880
06-16-2021
EUGENE SCALIA, SECRETARY OF LABOR, DEPARTMENT OF LABOR, Plaintiff, v. SX MANAGEMENT, LLC, a limited liability corporation doing business as STOREXPRESS, STEVEN MITNICK individually and as President and/or owner of SX MANAGEMENT, LLC, and EDMOND MCKEAN, individually and as an employee of SX MANAGEMENT, LLC, Defendants. EDMOND MCKEAN, individually and as an employee of SX MANAGEMENT, LLC, Cross Claimant, v. STEVEN MITNICK individually and as President and/or owner of SX MANAGEMENT, LLC, SX MANAGEMENT, LLC, a limited liability corporation doing business as STOREXPRESS, Cross Defendants.
District Judge Marilyn J. Horan
REPORT AND RECOMMENDATION
MAUREEN P. KELLY, UNITED STATES MAGISTRATE JUDGE
I. RECOMMENDATION
The United States Secretary of Labor (“the Secretary”) filed this action against SX Management, LLC (“SX”), Steven Mitnick (“Mitnick”), and Edmond McKean (“McKean”), claiming that Defendants violated provisions of Sections 7, 11(c), 15(a)(2), and 15(a)(5) of the Fair Labor Standards Act of 1938 (the “FLSA”), 29 U.S.C. § 201, et seq., by failing to pay overtime compensation that was owed, and by failing to keep accurate records of hours and wages worked by their employees. ECF No. 1. McKean also asserts a cross-claim against SX and Mitnick for retaliation pursuant to 29 U.S.C. § 215(a)(3). ECF No. 6.
Martin J. Walsh was sworn in as the Secretary of Labor on March 23, 2021. To date, the Secretary has not moved to amend the caption.
Presently before the Court is a Motion for Partial Summary Judgment filed by SX and Mitnick (collectively, the “SX Defendants”). ECF No. 112. The SX Defendants move for summary judgment with respect to the following claims: (1) all claims alleged by the Secretary under the overtime provisions of the FLSA for overtime wages, and any associated liquidated damages, relative to McKean; (2) the Secretary's claims under the recordkeeping provisions of the FLSA relative to McKean; and (3) McKean's cross-claim against the SX Defendants. Id.
For the following reasons, it is respectfully recommended that the SX Defendants' Motion for Partial Summary Judgment be granted in part and denied in part. The Court should deny the Motion for Partial Summary Judgment relative to the Secretary's claims at issue, and it should grant the Motion for Partial Summary Judgment relative to McKean's cross-claim against the SX Defendants.
II. REPORT
A. FACTUAL AND PROCEDURAL HISTORY
1. Factual Background
SX is in the business of operating self-storage facilities and renting storage and other spaces within the facilities. ECF No. 111 ¶ 5. Mitnick is the sole member of SX. Id. ¶ 6.
McKean is an owner of EKM Construction, Inc. (“EKM”), which specializes in the construction of self-storage facilities. Id. ¶¶ 1-2.
From approximately November 2012 to May 2017, SX retained EKM to perform a series of construction projects in which it built new storage facilities and renovated existing buildings into storage facilities. McKean, together with a crew of individuals under his supervision, performed the construction projects and other tasks at facilities operated by SX. Id. ¶¶ 3-4.
2. Pleadings
The Secretary filed the Complaint on June 30, 2017. ECF No. 1. In the Complaint, the Secretary alleges that the SX Defendants and McKean violated multiple provisions of the FLSA. Id. Specifically, the Secretary claims that, in violation of Sections 7 and 15(a)(2) of the FLSA, the SX Defendants and McKean failed to pay certain employees overtime compensation for hours worked in excess of forty in a work week. Id. ¶ 8. The Secretary further claims that, in violation of Sections 11(c) and 15(a)(5) of the FLSA, the SX Defendants and McKean failed to make, keep and preserve adequate and accurate records of hours worked by and wages due to many employees. Id. ¶ 9.
Appended to the Complaint, the Secretary included a “Schedule A” list of thirty-two workers (the “Schedule A Workers”), with respect to whom the FLSA violations allegedly occurred. ECF No. 1-2. In addition to being named as a Defendant, McKean is also included on this list. Id. As such, the Secretary claims that McKean is liable, pursuant to Section 3(d) of the FLSA as an “employer” of the Schedule A Workers, and he is also a supervisory “employee” of SX.
McKean filed an Answer to the Complaint on October 4, 2017, in which he asserted a cross-claim for retaliation against the SX Defendants. ECF No. 8. McKean claims that the SX Defendants retaliated against him by cutting his work hours and effectively terminating him as a result of his cooperation with the Department of Labor's investigation into the alleged FLSA violations. Id. ¶¶ 14-23. Based on these allegations, McKean asserts that the SX Defendants violated 29 U.S.C. § 215(a)(3), and he seeks lost wages, liquidated damages and attorneys' fees. Id.
McKean originally filed his Answer on October 3, 2017. ECF No. 6. He subsequently filed a corrected version on October 4, 2017 to remove references in error to Plaintiff's Amended Complaint. ECF No. 8.
SX filed an Answer to McKean's cross-claim on October 23, 2017. ECF No. 14.
On October 3, 2017, the SX Defendants filed a Motion to Dismiss or, in the alternative, for a More Definite Statement, and a Brief in Support relative to the Secretary's claims. ECF Nos. 3 and 7. On March 15, 2018, the undersigned submitted a Report and Recommendation recommending that the Motion to Dismiss be denied. ECF No. 20. On April 2, 2018, District Judge Nora Barry Fischer adopted the Report and Recommendation as the opinion of this Court. ECF No. 21. Thereafter, the SX Defendants filed an Answer and Affirmative Defenses to the Complaint. ECF No. 22.
3. Consent Judgment
On June 13, 2019, the Secretary filed a Motion to Approve and Enter Consent Judgment against Defendant Edmond McKean. ECF No. 49. In support of the Motion, the Secretary asserted that the SX Defendants were not parties to the Consent Judgment, and that he retained the right to pursue all claims against the SX Defendants. Id. at 1-2.
The Court granted this Motion, and the Consent Judgment was entered against McKean on June 19, 2019. ECF No. 57. Under the Consent Judgment, McKean is required to pay back wages and liquidated damages to twenty-seven of the thirty-two Schedule A Workers. Id. at 9. Although McKean is included on Schedule A to the Complaint, he is not one of the workers to whom payment is owed under the Consent Judgment.
There are five workers listed on Schedule A to the Complaint that are not also included on Schedule A to the Consent Judgment, including McKean, his son, Giovanni Cavaliere, Sunny Chedwick and Amber Staab. ECF No. 1-2; ECF No. 57 at 9.
Relevant here, the Consent Judgment includes a provision that “Defendant McKean agrees that he is an employer within the meaning of Section 3(d) of the Fair Labor Standards Act, 29 U.S.C. § 203(d).” Id. ¶ 10. In addition, the Secretary reserved the right to pursue its claims against SX and Mitnick:
By entering into this Consent Judgment, Plaintiff does not waive his right to pursue claims, back wages, liquidated damages or civil monetary penalties against SX Management, LLC or Steven Mitnick for the relevant period, or waive his right to pursue injunctive relief against SX Management, LLC or Steven Mitnick. Plaintiff specifically reserves his right to pursue all claims and relief, legal or equitable, against SX Management, LLC or Steven Mitnick sought in the Complaint in this action. This Consent Judgment has no effect on the amount of back wages, liquidated damages or civil monetary penalties that the Secretary may pursue against SX Management, LLC and Steven Mitnick.Id. ¶ 12.
The Secretary intends to continue pursuing his claims in this action against SX Management, LLC and Steven Mitnick. Defendant McKean agrees not to contest any subpoena compelling his appearance in this action.Id. ¶ 14.
4. Motion for Partial Summary Judgment
The parties conducted discovery. ECF Nos. 28 and 78. Pursuant to the Court's Scheduling Order, ECF No. 106, the parties filed a Joint Statement of Undisputed Facts on November 23, 2020. ECF No. 108.
The Joint Statement of Material Facts originally was filed on November 20, 2020, but it was not signed on behalf of all parties and was filed under the wrong event. ECF No. 107. Thereafter, the parties filed a corrected version at ECF No. 108 on November 23, 2020.
On December 15, 2020, the SX Defendants filed the instant Motion for Partial Summary Judgment and Brief in Support, together with a Concise Statement of Material Facts and Appendix. ECF Nos. 109, 110 and 111. The Motion for Partial Summary Judgment and Brief in Support were subsequently re-filed on December 17, 2020 to resolve a filing error. ECF Nos. 112 and 113.
On January 15, 2021, the Secretary filed a Response in opposition to the Motion for Partial Summary Judgment, together with a Concise Statement of Facts in Opposition and supporting Appendix. ECF Nos. 116 and 117.
On January 29, 2021, the SX Defendants filed a Reply Brief in Support of the Motion for Partial Summary Judgment. ECF No. 120. The SX Defendants also filed a Response to the Secretary's Concise Statement of Material Facts and supporting Appendix. ECF No. 121.
Despite the Court's Scheduling Order requiring any responses to be filed on or before January 15, 2021, McKean did not file a Response to the Motion for Partial Summary Judgment. ECF No. 106.
The Motion for Partial Summary Judgment is now ripe for consideration.
B. STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56, “[t]he 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). An issue of material fact is in genuine dispute if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Doe v. Abington Friends Sch., 480 F.3d 252, 256 (3d Cir. 2007) (“A genuine issue is present when a reasonable trier of fact, viewing all of the record evidence, could rationally find in favor of the non-moving party in light of his burden of proof”). Thus, summary judgment is warranted where, “after adequate time for discovery and upon motion . . . a party . . . fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Marten v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
The moving party bears the initial burden of demonstrating to the court that there is an absence of evidence to support the non-moving party's case. Celotex, 477 U.S. at 322; Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 140 (3d Cir. 2004). “[W]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.'” Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)).
In deciding a summary judgment motion, a court must view the facts in the light most favorable to the nonmoving party and must draw all reasonable inferences, and resolve all doubts in favor of the nonmoving party. Matreale v. N.J. Dep't of Military & Veterans Affairs, 487 F.3d 150, 152 (3d Cir. 2007); Woodside v. Sch. Dist. of Phila. Bd. of Educ., 248 F.3d 129, 130 (3d Cir. 2001).
C. DISCUSSION
1. SX Defendants' Motion for Partial Summary Judgment
The instant Motion centers on a single issue-whether it is possible for McKean to be both an “employee” and an “employer” under the FLSA with respect to the work at issue. ECF No. 112. The SX Defendants argue that he cannot be both. Because the Consent Judgment states that McKean was an “employer” of Schedule A Workers, the SX Defendants argue that any claims arising out of McKean's status as an “employee” necessarily fail. Id.
In particular, the SX Defendants argue that the FLSA was enacted on the premise that employers and employees are distinct, and that they have unequal bargaining power. ECF No. 113 at 7-8. It would be “nonsensical and contrary to the FLSA's fundamental purposes, ” they argue, for an individual to be classified as both an employee and employer with respect to the same work. Id. at 8. Because the FLSA defines “employee” and “employer” in relation to one another (e.g., an “employee” is “an individual employed by an employer”), the SX Defendants argue that these are by definition separate, mutually exclusive roles. Id. (citing 29 U.S.C. §§ 203(d), 203(e)(1)).
In support, the SX Defendants refer the Court to cases involving the FLSA's tip credit provisions, in which courts have held that an individual cannot “qualify as both an employer and a tipped employee under the FLSA.” Id. at 9 (citing Whited v. New Cafe at Greystone Gardens, No. 3:18-1811, 2020 WL 1271681, at *4 (M.D. Pa. Mar. 17, 2020)). The SX Defendants also argue that courts analyzing other employment and anti-discrimination statutes have found that an individual cannot be both an employer and an employee at the same time and in the same setting, and they argue that Title VII cases should be treated as persuasive authority in this context. Id. at 12-13. Finally, the SX Defendants argue that courts have consistently held that it violates the FLSA to permit an employer to seek contribution or indemnification from another party, and that permitting McKean to receive damages would be “tantamount to asserting a contribution claim against the SX [Defendants.]” Id. at 10-11.
The SX Defendants assert that they were unable to locate any authority in the Third Circuit in which the court considered whether a person could simultaneously be both an employee and employer within the same occupational setting for purposes of overtime payments and liability. ECF No. 113 at 9.
For these reasons, the SX Defendants argue that McKean's designation as an “employer” in the Consent Judgment means he could not also be an “employee.” Because the Secretary's claims against the SX Defendants for failure to pay McKean overtime and keep adequate records relative to his employment, as well as McKean's cross-claim, arise out of McKean's alleged status as an SX employee, the SX Defendants argue they are entitled to summary judgment with respect to those claims.
2. The Secretary's Response in Opposition
In the Response in Opposition, the Secretary raises three arguments. First, he argues that the Consent Judgment does not preclude his claims on behalf of McKean because it states the Secretary's intention to pursue those claims, and it expressly reserves the right for him to do so. ECF No. 116 at 7-8.
Second, the Secretary argues that the SX Defendants' claim that an individual cannot be both an employee under Section 3(e) and an employer under Section 3(d) is incorrect pursuant to the broad definitions and remedial purposes of the FLSA. Under Third Circuit precedent, he argues, supervisory employees fit the definition of employers under the FLSA. Id. at 2, 9. It is “axiomatic” these individuals would also be “employees” of an organization. Id. at 2. Accepting the SX Defendants' argument, then, would allow employers to avoid paying minimum wage and overtime to supervisory employees, an outcome that he argues is not supported by Third Circuit or United States Supreme Court precedent. Id. at 10. The Secretary refers the Court to cases in which courts have recognized that an individual can be an employee vis-a-vis certain individuals, and an employer with respect to others. Id. at 10-11.
With respect to the legal authority the SX Defendants rely upon, the Secretary argues that cases in the tip pooling context are unique to that situation and do not stand for the categorical proposition that an individual cannot be an employee and an employer; cases interpreting other employment statutes are not applicable because the FLSA has broader definitions of employee and employer; and that the Secretary's claim is not akin to a contribution or indemnification claim, because if the Secretary recovers back wages and liquidates damages for hours worked by McKean, those amounts will go to McKean instead of reducing the amounts owed to the Schedule A Workers. Id. at 10-14.
Finally, the Secretary argues that the facts uncovered during discovery support a finding that McKean is an employee pursuant to the economic realities test. Id. at 14-15.
3. Reply
In their Reply Brief, the SX Defendants argue that the Court should grant summary judgment with respect to McKean's cross-claim for retaliation because he did not file a Response in opposition. ECF No. 120 at 1-2.
With respect to the Secretary's Response, the SX Defendants raise three points. First, they argue that it is irrelevant whether McKean is an “employee” pursuant to the economic realities test because that is not the basis for their Motion. Id. at 2. Second, they argue that the Consent Judgment does not include any language that suggests McKean was a supervisory employee of the SX Defendants. Id. at 3. Third, they argue that the Secretary has not presented any legal authority that contradicts their position. Id. at 4. The SX Defendants acknowledge that business owners or supervisory employees may be subject to employer liability under the FLSA, but they argue that nothing the Secretary cites involves the particular situation at issue here- whether the “same individual may be deemed both an employee subject to the protections of the FLSA and an employer subject to liability under the FLSA relative to the very same conduct and circumstances.” Id. The SX Defendants argue that the Secretary does not adequately distinguish cases they have cited, arguing that cases involving tip pooling are instructive based upon those courts' application of the FLSA, and that cases applying other employment statutes are persuasive because those statutes also utilize non-overlapping definitions for “employee” and “employer.” Id. They also argue that the Secretary has failed to adequately address their position relative to indemnification and contribution or the cases they have cited for the proposition that “[o]nce Mr. McKean chose to be an employer in the context of the SX projects, he must remain so.” Id. at 5 (citing ECF No. 113 at 11).
4. Legal Analysis
a. The Secretary's Claims on Behalf of McKean
The Secretary brings claims on behalf of McKean under the FLSA. The FLSA is a remedial statute, which was designed to “to give specific minimum protections to individual workers and to ensure that each employee covered by the Act would receive ‘[a] fair day's pay for a fair day's work' and would be protected from ‘the evil of overwork as well as underpay.'” De Asencio v. Tyson Foods, Inc., 500 F.3d 361, 373 (3d Cir. 2007); Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981) (quoting Overnight Motor Trans. Co. v. Missel, 361 U.S. 572, 578 (1942)) (emphases omitted). To that end, the Act “establishes federal minimumwage, maximum-hour, and overtime guarantees that cannot be modified by contract.” Genesis Healthcare Corp. v. Symczyk, 569 U.S. 66, 69 (2012).
With respect to McKean, the Secretary claims that the SX Defendants failed to comply with Sections 7 and 11(c) of the FLSA. Section 7 relates to overtime compensation. In relevant part, it provides:
Under the FLSA, as amended, 29 U.S.C. § 201, et seq., the FLSA sections relied upon in the Secretary's enforcement action in this case, namely Sections 7 and 11(c) are synonymous with the statute's amended provisions 29 U.S.C. §§ 207 and 211(c). The Secretary also claims the SX Defendants violated Sections 15(a)(2) and (a)(5), which correspond with 29 U.S.C §§ 215(a)(2) and (a)(5) of the amended Act. Sections 15(a)(2) and (a)(5) make it unlawful to violate Sections 7 and 11(c).
[N]o employer shall employ any of his employees . . . for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.29 U.S.C. § 207(a)(1) (emphasis added).
Section 11(c) requires that an employer “shall make, keep, and preserve such records of the persons employed by him and of the wages, hours and other conditions and practices of employment maintained by him ....” 29 U.S.C. § 211(c) (emphasis added). Thus, in order to establish liability under either Section, the Secretary must prove the SX Defendants employed McKean.
Here, the SX Defendants argue that McKean was not their employee, and therefore the Court should grant summary judgment relative to these claims. They posit that the same individual cannot be an employee and employer in the same occupational setting for purposes of the FLSA. Because McKean admitted he was an employer in the Consent Judgment, the SX Defendants argue this proves he was not their employee.
Upon review, however, the SX Defendants fail to establish there is any such rule that prohibits an individual from being an employee and employer in the same occupational setting for purposes of the FLSA claims at issue. Because it was possible for McKean to act in both roles, the Court should deny summary judgment on these grounds.
In particular, the SX Defendants argue that because the FLSA clearly distinguishes between employees and employers, an individual cannot be both an employee and employer in the same occupational setting. ECF No. 113 at 7. Under the FLSA, an “employer” is “any person acting directly or indirectly in the interest of an employer in relation to an employee ” 29 U.S.C. § 203(d). An “employee” is “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). To “employ” means “to suffer or permit to work.” 29 U.S.C. § 203(g).
Although the SX Defendants suggest there is an “either/or” inquiry with respect to whether an individual is an “employer” or “employee” as those terms are defined in the FLSA, this is not supported. Courts have emphasized that these terms must be interpreted broadly, in order to effectuate the statute's remedial purpose. Solis v. A-1 Mortg. Corp., 934 F.Supp.2d 778, 788 (W.D. Pa. 2013); see also Tennessee Coal, Iron & R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 597 (1941), superseded by statute on other grounds, 29 U.S.C. § 251, et seq. (the FLSA is “remedial and humanitarian in purpose, ” and it “must not be interpreted or applied in narrow, grudging manner”).
The FLSA defines employer “expansively” and with “striking breadth.” In re Enterprise Rent-A-Car, 683 F.3d 462, 467 (3d Cir. 2012) (quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992)). The United States Supreme Court has noted that the FLSA's definition of employer is “the broadest definition that has ever been included in any one act.” Id. (quoting United States v. Rosenwasser, 323 U.S. 360, 363 n. 3 (1945)). As this term is broadly defined, corporate entities, owners, officers, and supervisory personnel may all constitute employers. Thompson v. Real Estate Mortg. Network, 748 F.3d 142, 153 (3d Cir. 2014); see also Solis, 934 F.Supp.2d at 788 (“Individuals acting in a supervisory capacity may be liable in their individual capacities as an employer under the FLSA.”).
The statutory definition of employee is also “exceedingly broad[.]” Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290, 295 (1985). The FLSA's definition of “employ” “stretches the meaning of ‘employee' to cover some parties who might not qualify as such under a strict application of traditional agency law principles.” Nationwide Mut. Ins. Co., 503 U.S. at 326. In determining whether an individual is an employee under the FLSA, the “economic reality rather than technical concepts is to be the test of employment.” In re Enterprise Rent-A-Car, 683 F.3d at 467 (quoting Goldberg v. Whitaker House Co-op, Inc., 366 U.S. 28, 33 (1961)).
Particularly given the broad construction afforded to these terms, courts have suggested that an individual can be an “employer” of certain individuals and an “employee” of others within the same occupational setting. In Hess v. Madera Honda Suzuki, for example, the district court rejected defendant's contention that plaintiff could not recover under the FLSA because she had an ownership interest in the defendant's business along with “substantial involvement in managing and paying workers[.]” Hess v. Madera Honda Suzuki, No. 1:10-cv-01821, 2012 WL 4052002, at *4 (E.D. Cal. Sept. 14, 2012). As the court explained, those facts simply established that plaintiff “was an employer vis-a-vis the other employees hired by the company” but did “not conclusively resolve the issue of whether Plaintiff herself could or could not have been one of the company's employees.” Id. (emphasis in original); see also Kehler v. Albert Anderson, Inc., No. 16-5318, 2017 WL 1399628, at **6-7 (D. N.J. Apr. 18, 2017) (relying upon Hess for the proposition that “the two roles of co-owner and employee are not mutually exclusive, ” and finding that minority equity owner of company was an employee); Aguirre v. Safe Hurricane Shutters, Inc., No. 07-22913, 2011 WL 5986817, at *1 (S.D. Fla. Oct. 29, 2011) (“[I]t appears from this [FLSA] language that if an owner or manager performs work, that person fits within the definition of an employee.”).
Indeed, the SX Defendants acknowledge in their Reply that supervisory employees may also be subject to employer liability under the FLSA. ECF No. 120 at 4; see also Hayberger v. Lawrence Cnty Adult Prob. & Parole, 667 F.3d 408, 417-18 (3d Cir. 2012) (individual supervisor at public agency can be liable under FLSA definition of “employer”). Such individuals would therefore be categorized as both employees and employers in the same occupational setting. Thus, there does not appear to be any categorical prohibition against an individual acting in both roles, as the SX Defendants suggest.
Because an individual can conceivably be an employee or employer vis-a-vis different individuals, the Court disagrees with the SX Defendants' suggestion that it would be “nonsensical and contrary to the FLSA's fundamental purposes of addressing unequal bargaining power and protecting employees” to conclude otherwise. ECF No. 113 at 8. As the SX Defendants note, bargaining power relates to “unequal power in a relationship . . . .” Id. (emphasis added). There is nothing inherently inconsistent with an individual's relative bargaining power varying depending upon the relationship at issue.
To the extent the SX Defendants rely upon cases regarding tipped employees and other employment statutes, the Court also does not find that these cases stand for the categorical proposition that an individual must be either an employee or an employer in the same occupational setting for purposes of the FLSA, or more specifically in the context of liability for overtime wages or failure to keep adequate records.
With respect to cases involving tipped employees, there is no indication that the holdings in these cases are more broadly applicable to the claims at issue here. The FLSA contains specific provisions regarding wages for tipped employees. Under the FLSA, employees must be paid a minimum wage of at least $7.25 per hour. 29 U.S.C. § 206(a)(C). But there is an exception for tipped employees. While tipped employees must receive at least $7.25 per hour, their employers are permitted to pay a direct hourly wage substantially below the minimum wage and then take a “tip credit” to meet the required $7.25 per hour wage. 29 U.S.C. § 206(m). Section 203 requires that all tips received by an employee be retained by the employee, however, tipped employees are permitted to pool their tips. Id. An employer is prohibited from participating in the tip pool. Whited, 2020 WL 1271681, at *3 (citing Chung v. New Silver Palace Rest., Inc., 246 F.Supp.2d 220, 230 (S.D.N.Y. 2002)).
In support of their Motion for Partial Summary Judgment, the SX Defendants rely upon a recent United States District Court of New Jersey decision, Whited v. The New Cafe at Greystone Gardens, and similar cases involving tipped employees cited therein. In Whited, plaintiff-employees claimed their employer, a partial owner, manager, and bartender at the restaurant where they worked, violated the FLSA by participating in the tip pool. As a matter of first impression in the Third Circuit, the district court considered “[w]hether an individual can qualify as both an employer and a tipped employee under the FLSA . . . .” Id. at *4. The court answered this question in the negative, for two reasons.
First, because an employer receives the benefit of a tip credit, which allows him to pay an hourly wage below minimum wage, the court concluded that it would be “contrary to the purposes of the FLSA to allow. . . an employer to take any portion of a tip pool while simultaneously allowing him to take a tip credit.” Id. (citing Gionfriddo v. Jazon Zink, LLC, 769 F.Supp.2d 880, 894 (D. Md. 2011)) (employer-owner could not share in employee tip pool under FLSA regardless of the extent of his bartending services).
Second, the court relied upon Section 203(m)(2)(B) of the FLSA, which states: “[a]n employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees' tips, regardless of whether or not the employer takes a tip credit.” Id. at *5 (citing 29 U.S.C. § 203(m)(2)(B)). The court found that this subsection “expresses Congress' unambiguous intent that an employer or manager may not receive a portion of tips received by employees.” Id.
Although the SX Defendants argue that the “logic of Whited and the cases it cites applies to the instant action, ” ECF No. 113 at 10, the courts in these cases did not purport to create a more broadly applicable rule outside of specific context they addressed. In Whited, the court limited its discussion to whether an “individual can qualify as both an employer and a tipped employee, ” and it focused its analysis upon the specific context of an employer participating in a tip pool. Whited, 2020 WL 1271681, at *3 (emphasis added).
In reaching this conclusion, the court relied upon two specific grounds-neither of which are applicable to the facts of this case. First, as discussed, the court was concerned that employers would contradict the FLSA's remedial nature by reaping the benefits of paying their workers less than minimum wage while simultaneously reducing the employees' tip pool by participating in it. Id. at *4. There is no similar concern at issue here. McKean allegedly is owed discrete wages for his overtime work, and any amounts paid to him do not reduce wages owed to others. Second, the court in Whited relied upon a specific FLSA provision prohibiting employers from keeping tips received by employees, which also does not apply here. Accordingly, the Court does not find these cases to be persuasive.
To the extent the SX Defendants refer the Court to cases involving Title VII and other anti-discrimination employment statutes, those cases are also distinguishable because the FLSA defines the terms employees and employers differently from these statutes. In Faush v. Tuesday Morning, Inc., 808 F.3d 208 (3d Cir. 2015), the United States Court of Appeals for the Third Circuit instructed that courts must apply a different analysis under these two statutes, given the “textual asymmetry” between how “employee” is defined in Title VII and the FLSA. Id. at 214; see also Haybarger v. Lawrence Cnty., 667 F.3d 408, 415 n. 6 (3d Cir. 2012) (noting that, because “[b]ecause Title VII defines an employer more narrowly than the FMLA and FLSA, decisions construing Title VII do not provide a persuasive source of authority”). The SX Defendants argue that other employment statutes are nonetheless instructive because they similarly employ “non-overlapping” definitions for these terms. However, as discussed, the distinct roles accorded to employees and employers does not preclude an individual from having different roles vis-a-vis different relationships (e.g., supervisory employees) in the same occupational setting.
As the SX Defendants point out, one of the cases they rely upon, Kirleis v. Dickie, McCamey & Chilcote, P.C., No.06- cv-1495, 2009 WL 3602008 (W.D. Pa. Oct. 28, 2009), involves claims under both Title VII and the FLSA. However, this decision pre-dates the Third Circuit's decision in Faush.
Finally, the SX Defendants argue that employers cannot seek contribution or indemnification from another party, and that it would be tantamount to asserting a contribution claim against the SX Defendants to permit McKean to receive damages for unpaid overtime. ECF No. 113 at 11. They argue this logic applies to “claims asserted both against and on behalf of Mr. McKean ” ECF No. 120 at 5.
With respect to claims asserted against McKean, however, those claims are not presently before the Court. McKean entered into a Consent Judgment that resolves those claims, and they are not the subject of the instant Motion.
Regarding the Secretary's claims on behalf of McKean, the SX Defendants fail to articulate how this situation is akin to a claim for contribution. Contribution refers to “the right of one tortfeasor to recover from another tortfeasor when both are liable to a victim and one has paid more than his or her equitable share of the common liability.” In re Cendant Corp. Sec. Litig., 139 F.Supp.2d 585, 594 (D. N.J. 2001). If McKean recovers unpaid wages, those amounts do not go to reduce amounts owed to Schedule A Workers. Therefore, the Court should reject this argument.
Based on the foregoing, the SX Defendants do not establish that McKean's status as an employer of Schedule A Workers necessarily precludes him from being the SX Defendants' employee under the FLSA. Because this is the sole basis for the SX Defendants' Motion, the Court should deny the Motion for Partial Summary Judgment with respect to the Secretary's claims.
b. McKean's Cross-Claim against the SX Defendants
The Court should, however, grant summary judgment with respect to McKean's crossclaim against the SX Defendants. Contrary to this Court's Order, McKean did not file a response in opposition to the instant Motion.
Generally, the Court may not grant a dispositive motion merely because it is unopposed. Jones v. Fisher, No. 3:CV-12-2113, 2014 WL 4272733, at *2 (M.D. Pa. Aug. 28, 2014). Under Federal Rule of Civil Procedure 41(b), however, the Court may dismiss an action if plaintiff fails to prosecute or comply with court orders. Fahs v. Swift, No. 3:18-cv-0079, 2020 WL 1233634, at *1 (W.D. Pa. Mar. 13, 2020). Punitive dismissal of an action for failure to comply with court orders is left to the discretion of the court. Mindek v. Rigatti, 964 F.2d 1369, 1373 (3d Cir. 1992).
In determining whether an action should be dismissed as a sanction against a party the court must consider six factors. These factors, as set forth in Poulis v. State Farm Fire and Casualty Company, 747 F.2d 863, 868 (3d Cir. 1984), are as follows:
(1) The extent of the party's personal responsibility.
(2) The prejudice to the adversary caused by the failure to meet scheduling orders and respond to discovery.
(3) A history of dilatoriness.
(4) Whether the conduct of the party or the attorney was willful or in bad faith.
(5) The effectiveness of sanctions other than dismissal, which entails an analysis of alternative sanctions.
(6) The meritoriousness of the claim or defense.
In considering these factors, no single factor is dispositive, and not every factor must be satisfied in order for the Court to dismiss an action. Fahs, 2011 WL 5986817, at *2 (citing Briscoe v. Klaus, 538 F.3d 252, 263 (3d Cir. 2008); Ware v. Rodale Press, Inc., 322 F.3d 218, 221 (3d Cir. 2003)).
Upon review, the Poulis factors weigh in favor of dismissing McKean's cross-claim. The first Poulis factor considers the extent of the party's personal responsibility for the inaction. Because McKean is represented by counsel, it is not clear to what extent McKean bears personal responsibility for any failure to file a response. Therefore, the first factor is neutral.
The second factor, prejudice to the opposing party, weighs in favor of dismissal. McKean's failure to litigate his cross-claim and comply with this Court's Scheduling Order frustrates and delays the resolution of the SX Defendants' Motion, prejudicing their right to a timely resolution of this action.
The third factor considers whether the party has engaged in a history of dilatoriness, meaning “extensive or repeated delay or delinquency.” Adams v. Trustees of N.J. Brewery Employees' Pension Trust Fund, 29 F.3d 863, 874 (3d Cir. 1994). Although McKean's failure to file a response to the instant Motion for six months is dilatory, there is no prior history of such conduct in this litigation. Accordingly, this factor does not weigh in favor of dismissal.
The fourth factor, whether the action is willful or in bad faith, however, weighs strongly in favor of dismissal. The SX Defendants filed the instant Motion six months ago, and they specifically addressed McKean's failure to respond and apparent abandonment of his cross-claim in their Reply filed over four months ago. ECF Nos. 112 and 120. Throughout this time, McKean has not filed any response to the Motion for Partial Summary Judgment, requested an extension of time to respond, or communicated with the Court regarding any continued intent to pursue his cross-claim.
In addition, McKean's counsel participated in the Joint Statement of Undisputed Material Facts, suggesting that she had knowledge of this Court's Scheduling Order regarding summary judgment and the pending motion, but chose not to file a response. On the whole, these facts suggest that McKean willfully failed to file a response.
For this reason, the Court should also find that the fifth factor, the effectiveness of sanctions other than dismissal, supports the dismissal of this case. Because McKean is represented by competent counsel and previously resolved the claims against him, his willful failure to respond strongly suggests that he is no longer interested in prosecuting his remaining cross-claim. Given this, dismissal appears to be the most appropriate sanction.
Finally, the sixth factor considers whether McKean asserts a meritorious claim. “Generally, in determining whether a plaintiff's clam is meritorious, [the Court] use[s] the standard for a Rule 12(b)(6) motion to dismiss for failure to state a claim[, ] such that “[a] claim [is] . . . meritorious when the allegations of the pleadings, if established at trial, would support recovery by plaintiff . . . .” Briscoe v. Klaus, 538 F.3d 252, 263 (3d Cir. 2008). There is no dispute that McKean sufficiently pleads a claim. Accordingly, this final factor does not support dismissal.
Thus, three of the six factors weigh in favor of dismissal, with the fourth factor weighing strongly in favor of dismissal. On balance, these factors therefore tip in favor of dismissal. Particularly considering McKean's apparent lack of interest in continuing to prosecute his crossclaim, the Court should dismiss this claim under Federal Rule of Civil Procedure 41.
D. CONCLUSION
For the foregoing reasons, it is respectfully recommended that the Motion for Partial Summary Judgment, ECF No. 112, be granted in part and denied in part. The Court should deny summary judgment with respect to the Secretary's claims on behalf of McKean. The Court should grant summary judgment with respect to McKean's cross-claim against the SX Defendants.
In accordance with the Magistrate Judges Act, 28 U.S.C. § 636(b)(1), and Local Rule 72.D.2, the parties are permitted to file written objections in accordance with the schedule established in the docket entry reflecting the filing of this Report and Recommendation. Failure to timely file objections will waive the right to appeal. Brightwell v. Lehman, 637 F.3d 187, 193 n.7 (3d Cir. 2011). Any party opposing objections may file their response to the objections within fourteen (14) days thereafter in accordance with Local Civil Rule 72.D.2.
All counsel of record via CM/ECF