March 02, 2026|Franchise Frontlines
March 2, 2026 | U.S. District Court for the Eastern District of New York | Magistrate Judge James R. Cho | Report and Recommendation
Executive Summary
In a wage-and-hour action arising under the Fair Labor Standards Act (“FLSA”) and New York Labor Law, the Eastern District of New York recommended granting in part a motion for default judgment against both a corporate employer and its individual owner, finding that the owner qualified as an “employer” based on operational control over the plaintiff’s work. The plaintiff alleged that he worked substantial overtime without proper compensation and was denied required wage notices and statements. The court concluded that the well-pleaded allegations—accepted as true in light of defendants’ default—established both enterprise coverage and joint employer liability, including individual liability for the owner who exercised control over hiring, wages, schedules, and termination. The decision illustrates the continued breadth of the “employer” definition under the FLSA and the risks associated with operational control over employees.
Relevant Background
The plaintiff worked as a cook and stockroom employee at a deli operated by the corporate defendant. He alleged that during his employment, he regularly worked between 57 and 69 hours per week but was paid a fixed weekly salary without overtime premiums. The plaintiff further alleged that he did not receive required wage notices at the time of hiring or accurate wage statements during his employment.
The complaint also alleged that the individual defendant—an owner and operator of the business—exercised direct and continuous control over the plaintiff’s employment. According to the pleadings, the individual defendant hired the plaintiff, set his wages, supervised his work, determined his schedule, maintained employment records, and ultimately terminated his employment.
After the defendants failed to appear or respond, the Clerk entered default, and the plaintiff moved for default judgment seeking unpaid wages, liquidated damages, statutory damages, and costs.
Decision
The court first addressed whether the plaintiff sufficiently established liability under the FLSA and New York Labor Law. Because the defendants defaulted, the court accepted the plaintiff’s factual allegations as true, while still assessing whether those allegations established a viable legal claim.
With respect to the employer-employee relationship, the court emphasized the broad scope of the FLSA’s definition of “employer” and applied the economic reality test. The court focused on whether the individual defendant exercised operational control over the plaintiff’s employment, including authority over hiring, firing, compensation, scheduling, and supervision.
The court found that the plaintiff’s allegations were sufficient to establish that the individual defendant functioned as an employer. The allegations that the individual defendant set wages, directed daily work, controlled schedules, and maintained employment records supported a finding of operational control. As a result, the court concluded that both the corporate entity and the individual defendant were jointly and severally liable as employers.
The court also found that the plaintiff sufficiently alleged enterprise coverage under the FLSA, based on allegations that the business had annual sales exceeding $500,000 and engaged in interstate commerce through the handling of goods originating outside the state.
Turning to damages, the court conducted a detailed analysis based on the plaintiff’s affidavit and reasonable estimates of hours worked. The court calculated unpaid overtime wages using the applicable regular rate and recommended awarding liquidated damages equal to the unpaid wages. The court also recommended statutory damages for violations of the New York Wage Theft Prevention Act based on the failure to provide wage notices and statements.
Finally, the court recommended awarding prejudgment interest and costs, while denying recovery for unpaid minimum wages where the plaintiff’s regular rate exceeded the statutory minimum.
Looking Forward
Although this decision arises in the context of a default judgment, it reinforces a consistent principle in wage-and-hour litigation: courts focus on functional control when determining who qualifies as an employer. Formal titles and corporate structures carry less weight than the reality of how authority is exercised in practice.
For franchisors and multi-entity systems, the analysis provides a useful reminder that individuals who exercise direct control over compensation, scheduling, and supervision may be exposed to liability alongside the entity itself. While the case involves a single-location business, the reasoning reflects broader trends in how courts assess control across different organizational structures.
The decision also underscores the continued importance of maintaining compliant wage practices and documentation. Failures relating to overtime compensation, wage notices, and wage statements can result in layered liability, including liquidated and statutory damages.
At the same time, the procedural posture of the case limits its broader application. The court relied on unchallenged allegations and did not address competing interpretations of the facts. As a result, the decision does not expand the legal framework governing employer liability but instead illustrates how established principles are applied when defendants fail to defend.
For system operators, the case serves as a practical reminder that operational involvement—particularly at the individual level—may influence how liability is assessed, even where formal structures suggest otherwise.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
