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‘Sister corporations’ can be sued for wages

Joint employer theory approved

RYAN, ELIZABETHRestaurant managers who worked for the same chain but at different, separately incorporated locations could bring a class action against the parent corporation for allegedly depriving them of paid break time in violation of the state Wage Act, a Superior Court judge in Massachusetts has held.

The defendant parent corporation argued that, under the joint employer test, each potential plaintiff would individually have to sue the specific restaurant where he worked. The joint employer test allows employees to sue only their actual employer unless they can show another entity can hire and fire employees at that location, control their schedules and working conditions, determine their pay rate, and maintain employment records on them.

But Judge Bruce R. Henry disagreed, holding that the plaintiff managers could sue the parent company as a class under the less onerous single integrated enterprise theory, under which a showing of interrelated operations, common management, centralized control of labor relations, and common ownership would be enough to support joint liability.

“[F]rom the factual allegations provided in the complaint, it is reasonable to infer that [defendant] Chateau Corp. and the [sister corporations where the managers worked] are integrated with one another to the degree that liability may be imposed upon these parties,” Henry wrote, denying the defendants’ motion to dismiss. “Here, [the lead plaintiff] has sufficiently pled facts to establish that the Chateau Corp. and all the Chateau corporations are a single employer for purposes of the Massachusetts Wage Act.”

The six-page decision is Fitzgerald, et al. v. The Chateau Restaurant Corporation, et al.

More streamlined standard

Nicholas F. Ortiz of Boston, co-counsel for the plaintiffs, said the decision should prove helpful for employees in Massachusetts.

“Ultimately, the joint employment and single integrated employer tests are very different,” he said. “The single integrated employer test is more streamlined and less onerous. Because of that, when plaintiffs attempt to group claims together from related companies that are under common control or ownership, they’ll be more likely to succeed.”

Boston lawyer Elizabeth A. Ryan, who also represents the plaintiffs, said the decision makes Wage Act claims such as the one in Fitzgerald more economically viable for employees.

The case involved a chain of restaurants owned and operated by the same people, using the same policies, with only a few managers in each location, Ryan said. If each manager was forced to bring a claim individually against just his location, the case would be difficult to pursue given the small amount of money at stake relative to the cost of bringing suit.

“But as a group there’s comfort in numbers, [as opposed to a] process that’s extremely cumbersome and expensive, making it harder for employees to assert their rights,” she said.

Stephen S. Churchill of Fair Work, P.C. in Boston, who handles wage and hour class actions for employees, said the decision is important for two additional reasons.

First, he said, it reinforces the inappropriateness of trying to use motions to dismiss to resolve factually rich issues, such as the level of interconnectedness between related businesses.

The decision also recognizes two different theories by which wage claims in Massachusetts can reach all responsible parties, Churchill said.

“The Legislature has written the wage laws to ensure that responsible parties are held accountable, so this decision is in keeping with that intent,” Churchill said.

Defense counsel Erika M. Collins of Boston declined to comment. But Nathan L. Kaitz, a management-side labor and employment lawyer in Boston, said Fitzgerald sends a message to employers that if they intend to run their enterprises on an integrated basis, they need to be prepared to fully comply with all wage laws on an integrated basis as well.

Alleged violations

Defendant Chateau Corp. is the parent company of eight Italian restaurants at various Massachusetts locations. Each location is incorporated separately.

Plaintiff Kevin Fitzgerald worked as a manager at Chateau locations in Burlington and Andover, earning $21 an hour until he was terminated in April 2013.

According to Fitzgerald, hourly managers at the various locations were not allowed to leave the restaurant for meal breaks if there were no other managers on site.

Fitzgerald also alleged that hourly managers had to be immediately available at all times to handle any staff or customer issues that might require their intervention. He maintained that such issues arose constantly, and because there was frequently only one manager on site, they were unable to take their meal break time.

At the same time, Fitzgerald claimed that his and other managers’ pay was deducted to include a full half-hour meal break for each shift worked.

Ultimately, Fitzgerald sued the parent company, the two locations where he worked, the other Chateau locations — collectively identified in the suit as the “Sister Corporations” — and defendant Joseph Nocera, president and treasurer of the parent corporation and all its locations, for non-payment of wages under the Wage Act.

Fitzgerald filed the suit as a proposed class action on behalf of himself and all other similarly situated managers employed at the various Chateau locations.

Chateau Corp. and the sister corporations moved to dismiss for failure to state a claim, arguing that under the joint employment theory Fitzgerald did not establish an employment relationship between the purported class members and locations other than where they each actually worked.

In response, Fitzgerald contended that his complaint provided facts sufficient to assert an employment relationship under either the joint employment theory or the single integrated enterprise theory.

Single integrated employer

Addressing the defendants’ motion, Henry observed that while Massachusetts courts had provided prior guidance as to the applicability of the integrated enterprise or joint employer theories under the federal Fair Labor Standards Act, little case law existed on the applicability of those tests to Wage Act claims.

The judge took into consideration, however, Fitzgerald’s argument that language from a 2012 Massachusetts federal District Court decision, Joyce v. Upper Crust, LLC, supported the use of either test in the Wage Act context. In Joyce, the plaintiff brought Wage Act claims against both his direct employer and a management company, which was owned by the same people as the direct employer and was listed as the plaintiff’s employer with the Department of Labor.

Henry agreed with Fitzgerald’s argument.

“The holding in Joyce specifically makes reference to the ‘closely intertwined nature’ of the two corporations’ operations as well as the fact that the management company was ‘owned by the same three individuals who own[ed] [plaintiff’s direct employer],’” said Henry, noting that the language tracks closely with two of the four factors of the single integrated enterprise test: interrelation between operations and common ownership.

The judge also observed that the Joyce court found that the management company could be held liable both as a joint employer and under “similar theories of liability.”

“The plural language, ‘theories,’ expressly provides that multiple vehicles exist for establishing an employment relationship under Massachusetts Wage Act claims, rather than solely the joint employment test,” Henry said. “Therefore, this court finds that the single integrated enterprise factors may be used by Fitzgerald to establish that Chateau Corp. and all Chateau restaurant locations are a single employer for purposes of liability under the Wage Act.”

Henry went on to find that, based on the factual allegations in the complaint, it was indeed reasonable to infer that Chateau Corp. and the sister corporations were sufficiently integrated to impose liability on them collectively.

Specifically, the judge noted that the same person served as president and treasurer of each location as well as the parent corporation, which operated as a holding company. Plus, hourly managers at each location had pay automatically deducted for meal breaks but were not actually allowed to leave the worksite for real breaks if they were the lone hourly manager on duty, Henry continued.

“These factual allegations provide a basis for a reasonable inference that there is common management and common ownership of Chateau Corp. and the Chateau restaurants,” the judge said, alluding to two factors of the single integrated enterprise test.

The same facts also permitted a reasonable inference that there was, to some degree, centralized control of each Chateau restaurant, Henry added, applying a third factor.

Accordingly, Henry concluded, the defendants’ motion to dismiss should be denied and the claim should be permitted to proceed on a class basis. 

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