October 03, 2025|Franchise Frontlines
October 3, 2025 | U.S. District Court for the Southern District of New York | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Margaret M. Garnett of the Southern District of New York granted in part and denied in part a motion for default judgment brought by a former food-truck employee who alleged overtime and spread-of-hours violations under the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL). The court found the corporate defendant and three individual owners jointly and severally liable for unpaid overtime, liquidated damages, and spread-of-hours pay but dismissed the NYLL wage-notice and wage-statement claims for failure to establish Article III standing. Although this was a default case, the court’s reasoning offers a detailed view into recordkeeping, pay-structure, and joint-employer risks that frequently arise in multi-unit, family-run, and franchise-adjacent operations.
Relevant Background
According to the allegations—which, due to the defendants’ default, the court accepted as true—the plaintiff worked on two Tacos El Gallo Giro food trucks in New York from October 2021 to August 2024. He alleged that he typically worked six days a week, twelve hours per day, for a total of seventy-two hours weekly. He alleged he was paid $600 per week in cash regardless of hours worked, received no overtime premium, and was never provided wage notices or wage statements in the formats required by New York law.
The plaintiff further alleged that the business was operated by a corporate entity alongside multiple individual owners who jointly supervised employees, set schedules, controlled whether and when employees were paid, and directed day-to-day operations. Because the defendants defaulted entirely—failing to answer, appear, or contest the motion—the court treated the allegations as true for liability purposes. Even so, the court scrutinized procedural requirements carefully, ensuring compliance with service obligations, Soldiers’ and Sailors’ Civil Relief Act affidavits, default-entry prerequisites, and supporting documentation before granting judgment.
The plaintiff sought damages for unpaid overtime under the FLSA and NYLL, as well as statutory damages for missing wage notices (NYLL §195(1)) and wage statements (NYLL §195(3)). He also sought spread-of-hours damages and liquidated damages. Because the defendants were absent, the court faced the difficult task common in default cases: reconstructing hours and wages from limited evidence, applying statutory formulas, and correcting errors in the plaintiff’s damages calculations.
The court entered judgment only after performing its own detailed recalculations, verifying the economic reality of the work relationship, and ensuring the legal standards for default judgment, jurisdiction, and liability were satisfied.
Decision
The court granted default judgment in part, finding liability for unpaid overtime and spread-of-hours compensation under FLSA and NYLL. The decision provides a thorough analysis of multi-entity responsibility, the economic-reality test for individual liability, and the post-TransUnion treatment of technical notice violations. For franchisors and multi-unit operators, the decision offers a clear window into how courts examine authority, control, recordkeeping, and operational structure when an employer fails to maintain compliant systems.
The court began by determining that the plaintiff adequately alleged an employment relationship. Applying the economic-reality test from Carter v. Dutchess Community College, Judge Garnett evaluated authority over hiring and firing, supervision, schedule setting, pay control, and recordkeeping. Because the defendants defaulted and did not rebut any allegation, the court found each individual owner jointly and severally liable. The judge highlighted that even seemingly modest operational involvement—such as supervising shifts or helping set pay—can satisfy the Carter factors when unrebutted. The court’s reasoning provides a reminder that individuals in small or multi-unit businesses can face personal liability when compliance systems are weak or when payroll is informal.
Turning to the corporate entity, the court found that the food-truck operation qualified as an FLSA “enterprise engaged in commerce,” noting that food trucks regularly serve interstate consumers and purchase goods in interstate commerce. Because the corporate entity defaulted, the enterprise coverage allegations were deemed admitted. Combined with the economic-reality findings, the court easily concluded that both the entity and the owners were FLSA employers.
The court then analyzed the unpaid-overtime claims. Under federal and state law, employers must pay time-and-a-half for hours worked over forty. Because the plaintiff alleged that he worked seventy-two hours every week for a weekly flat salary of $600, the franchisors’ equivalent of a “fixed salary is presumed to cover only forty hours” rule applied. Relying on cases such as Kuebel v. Black & Decker Inc., Judge Garnett explained that employers who fail to keep records cannot complain about uncertainty and that reasonable estimates must be accepted when the employer’s default leaves no contradictory evidence. For each week, the judge calculated unpaid overtime by first reconstructing an implied regular rate, then applying the appropriate overtime premium, and then subtracting the straight-time component already included in the flat salary. This aspect of the decision reveals how quickly wage exposure can escalate when employers—particularly in food service, hospitality, or franchise-adjacent environments—do not maintain proper wage records.
The court next addressed spread-of-hours pay, a uniquely New York requirement that mandates an extra hour of minimum wage whenever an employee works more than ten hours in a day. Based on the plaintiff’s allegations of twelve-hour shifts, six days per week, the court found spread-of-hours liability and awarded damages for each qualifying day. Judge Garnett corrected the plaintiff’s miscalculation of the formula, illustrating the court’s willingness to award only what the statutes clearly permit. For franchisors with New York operators, the court’s analysis shows the importance of monitoring compliance with this often-overlooked rule.
In a significant employer-side development, the court dismissed the NYLL wage-notice and wage-statement claims without prejudice for lack of Article III standing. Citing TransUnion LLC v. Ramirez and applying reasoning similar to that used in Wang v. XBB, Inc. and other recent SDNY cases, the court held that the plaintiff alleged no concrete injury flowing from the technical violations. Although the plaintiff had not been paid overtime, the court found this injury derived from his wage-underpayment—not from the absence of statutory notices. Because the plaintiff could not articulate how the missing notices caused a separate informational or monetary injury, the court lacked jurisdiction over those claims. This represents an important refinement in wage-and-hour litigation: plaintiffs must now show real-world injury attributable specifically to the missing disclosures, not simply rely on statutory entitlement.
The judge also reviewed procedural requirements for default judgments. She confirmed that the plaintiff’s Soldiers’ and Sailors’ Civil Relief Act affidavit was sufficient, that the default entries were properly obtained, that the defendants were served, and that the plaintiff complied with Local Civil Rule 55.2 by providing copies of the motion, supporting declarations, and exhibits to each defendant. This procedural rigor underscores that default judgments—even against non-appearing employers—require careful adherence to the court’s rules.
Ultimately, the court granted judgment for overtime and spread-of-hours damages, awarded matching liquidated damages under both FLSA and NYLL, and denied the wage-notice and wage-statement penalties. The individual owners and the corporate entity were all held jointly and severally liable for the final amounts once recalculated by the court.
Looking Forward
This case may offer franchisors, franchise systems, and multi-unit operators a clear warning about wage-and-hour exposure in decentralized or informal operations. Although the defendants here defaulted, the decision highlights several compliance vulnerabilities that recur across restaurants, hospitality, home-health networks, and small franchise units.
The court’s application of the Carter economic-reality test illustrates how easily individuals can become liable when they participate in hiring, scheduling, or payroll functions. This may serve as a reminder that owners of restaurants, food trucks, or franchise locations may benefit from documenting day-to-day responsibilities and ensuring that wage and hour compliance systems—not personal oversight—govern pay decisions. Even in heavily franchised environments, clarity regarding operational boundaries may help reduce joint-employer allegations and prevent liability from expanding beyond the corporate entity.
The dismissal of wage-notice and wage-statement claims may also be a positive development for employers. Courts increasingly require plaintiffs to show that the absence of these notices caused a separate, concrete injury. Businesses may benefit from maintaining compliant onboarding and payroll systems, but they now have stronger grounds to oppose statutory penalties disconnected from real-world harm. That said, the ruling reflects a developing area of law, and employers should expect courts to vary on how they interpret informational injuries.
This case also illustrates the importance of maintaining accurate time records. When employers fail to keep records—or when payroll is paid in cash without documentation—the court is permitted to infer hours from an employee’s recollection. These inferences often dramatically increase wage exposure in the absence of employer-produced evidence. Multi-unit operators and franchisors may consider training their franchisees on proper timekeeping and record retention, particularly in industries with long shifts or overtime-heavy workloads.
Finally, this decision shows that spread-of-hours liability remains a significant risk for New York operators, including franchisees in food service and hospitality. Courts apply the rule strictly, and even minor deviations can lead to substantial cumulative exposure. Employers may benefit from auditing daily schedules and ensuring compliance with both federal and state rules.
Although this case is a default judgment and therefore fact-specific, the court’s reasoning provides an instructive roadmap for managing wage-and-hour risk in multi-entity or multi-location businesses. By strengthening compliance systems, documenting operational boundaries, and supporting franchisees in payroll best practices, franchisors and employers may reduce litigation exposure and improve workforce transparency.
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 Shareholder at Buchalter APC 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.
