August 13, 2025|Publications
August 13, 2025 | Supreme Court of New York, Appellate Division, Second Department | Slip Opinion
Executive Summary
In a slip opinion, Justice Betsy Barros of the Appellate Division, Second Department, affirmed the denial of a motion to dismiss in Yu v. Mask Pot, Inc., 2025 N.Y. Slip Op. 04673 (2d Dep’t Aug. 13, 2025). The plaintiff, a food preparer, sought unpaid overtime wages under the Fair Labor Standards Act (FLSA) and New York Labor Law. The defendants argued they did not qualify as her employers. The court disagreed and concluded that the amended complaint sufficiently alleged that two related restaurant companies functioned as a single integrated enterprise, that individual shareholders exercised day-to-day authority over employment matters, and that functional control existed even though the plaintiff only worked three overlapping days at the second restaurant location. The ruling shows how minimal factual overlap can establish joint employer liability.
Relevant Background
The plaintiff worked as a food preparer at Xiang Hot Pot in Flushing from June 2018 through January 2020. Mask Pot, Inc. operated that location. She alleged that Mask Pot and BK Spice World, Inc., which ran a Brooklyn Xiang Hot Pot, functioned as a single enterprise. According to the complaint, the two companies shared staff and managers, transferred employees between locations, pooled supplies from a common warehouse, used the same payroll system, and advertised themselves jointly under the Xiang Hot Pot name.
The plaintiff also alleged that Hui Fang and Wei Zhao personally directed her work. Fang, known to workers as “Boss,” hired kitchen staff and ratified pay decisions. Zhao managed the Flushing location before becoming the “big manager” in Brooklyn, where the plaintiff alleged he also supervised her.
The complaint acknowledged that BK Spice did not hire or fire the plaintiff, determine her wages, or maintain her records—facts typically associated with formal control. Instead, the complaint alleged functional control. The plaintiff claimed that she worked at the Brooklyn location on three occasions: twice before opening to perform cleaning and once after opening to prepare food.
The plaintiff filed a putative class action seeking unpaid overtime wages and related statutory remedies under the FLSA, New York’s Minimum Wage Act, and the state’s Wage Theft Prevention Act. When the defendants moved to dismiss under CPLR 3211(a)(7) for failure to state a claim, the Supreme Court denied the motion. Defendants appealed.
Decision
The Appellate Division affirmed and held that the complaint adequately alleged joint employment.
First, the court analyzed whether Mask Pot and BK Spice operated as a single integrated enterprise. Under Benzinger v. Lukoil Pan Ams., LLC, 447 F. Supp. 3d 99, 133 (S.D.N.Y. 2020), courts consider four factors: (1) interrelation of operations, (2) centralized control of labor relations, (3) common management, and (4) common ownership or financial control. The most critical factor focuses on centralized control of labor relations. In practice, courts assessing restaurants have also looked to whether locations share décor, menus, employees, payroll functions, and supplies. See Khereed v. W. 12th St. Rest. Grp. LLC, No. 15-cv-1363 (PKC), 2016 WL 590233, at *4 (S.D.N.Y. Feb. 11, 2016). Here, the plaintiff alleged that Mask Pot and BK Spice operated under the same Xiang Hot Pot brand, shared staff and managers, transferred employees between locations, pooled supplies from a central warehouse, and paid workers from the same payroll system. The court determined that these allegations supported a plausible inference that the companies functioned as a single integrated enterprise for purposes of the FLSA and New York Labor Law.
Second, the court considered whether Hui Fang and Wei Zhao qualified as employers in their individual capacities. In Lomeli v. Falkirk Mgmt. Corp., 179 A.D.3d 660, 663, 116 N.Y.S.3d 332, 335 (2d Dep’t 2020), the court held that shareholders or officers may face liability under the FLSA and Labor Law only if they exercise operational control over employees. Courts applying the “economic reality” test look to whether an individual hires or fires employees, supervises schedules, determines pay, or maintains records. The plaintiff alleged that Fang, known as “Boss,” hired kitchen workers, supervised staff, and ratified pay decisions, while Zhao managed the Flushing location and later became the “big manager” in Brooklyn, where he supervised her directly. The court concluded that these allegations, taken together, satisfied the economic reality test because they alleged day-to-day control over essential employment matters.
Third, the court evaluated whether BK Spice exercised formal control. Under Carter v. Dutchess Cmty. Coll., 735 F.2d 8, 12 (2d Cir. 1984), formal control exists if the alleged employer hires or fires the employee, supervises schedules or working conditions, determines pay, or keeps employment records. The plaintiff’s complaint did not allege that BK Spice hired or fired her, set her pay rate, or maintained her records. Because the complaint omitted those allegations, the court concluded that it did not establish formal control by BK Spice.
Finally, the court addressed functional control. In Zheng v. Liberty Apparel Co., 355 F.3d 61, 72–76 (2d Cir. 2003), the Second Circuit explained that even when formal indicia of employment are absent, a defendant may still qualify as an employer if it exercises functional control over workers. Courts weigh several factors, including whether the work occurred on the alleged employer’s premises, whether the tasks were integral to the business, whether employees could shift as a unit between employers, and whether the alleged employer supervised the work. Applying this framework, the court noted that the plaintiff alleged three work assignments at the Brooklyn location: two cleaning shifts before opening and one shift preparing food after the restaurant opened. The court concluded that, although the overlap amounted to only three workdays, the allegations plausibly established functional control and supported a joint employer theory under the FLSA and New York Labor Law.
Looking Forward
This decision underscores the challenges employers face in jurisdictions that recognize indirect or functional control as a basis for joint employment. Those standards already create a difficult hurdle because courts can impose liability even without traditional hallmarks of control, such as hiring, firing, or payroll authority. Yu raises the stakes further because the Appellate Division held that only three overlapping workdays at a second location satisfied the functional control test. By crediting such a de minimis overlap, the court showed how little a plaintiff may need to allege at the pleading stage to avoid dismissal. For franchisors and other multi-entity operators, the lesson is clear: when indirect or functional control standards apply, even minimal operational ties can trigger extended litigation and potential exposure.
At the same time, the franchise community continues to debate whether a return to a direct and immediate control standard for joint employment at the federal level would provide relief. While such a change may narrow exposure under the FLSA and similar federal statutes, state courts and legislatures have increasingly adopted broader tests that focus on functional or indirect control. As a result, federal reform is not a silver bullet. Franchisors cannot rely on it as a short- or long-term solution, and they should plan accordingly.
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.
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