Saying that it should “come as no surprise” to the president and CEO of a popular grocery chain, the U.S. District Court for the Southern District of New York recently held the executive individually liable for millions of dollars in unpaid overtime compensation.

What happened. In this class action lawsuit that spanned a number of years, mid-level managers at the defendant’s chain of New York-based grocery stores claimed that the company misclassified managers to avoid paying them overtime. Although the case was settled in 2009, the employees claimed that the settlement’s payment schedule was not adhered to. Therefore, the employees argued, the president, CEO and sole owner of the grocery store should be held individually liable for what amounted to millions of dollars in unpaid overtime.

What the court said. The court rejected the CEO’s argument that he exercised no control over the employee classification system or payment of overtime. Instead, the court determined that the CEO was an “employer” within the meaning of the Fair Labor Standards Act (FLSA) and New York Labor Law. In reaching its determination, the court considered that both state and federal law defined the term “employer” broadly to include “any person acting directly or indirectly in the interest of an employer in relation to any employee.” As such, the CEO’s admissions in a separate lawsuit that he was the sole owner, president and CEO of the grocery chain, that he had owned the enterprise for 20 years, had the right and authority to open, close and reopen stores, set prices, selected store décor, and controlled store signage and advertising served as evidence of his role as an employer.

The court also noted that the CEO hired managers and had the power to open and close stores, and therefore to hire and fire. The fact that he delegated these powers to others was irrelevant, said the court. The CEO “need not look over his workers’ shoulders every day in order to exercise control.” Torres v. Gristede’s Operating Corp., S.D.N.Y., 04-CV-3316 (9/9/11).

Point to remember. Although most employers indemnify CEOs and presidents against personal liability in most situations, it is important to note that if the company’s policy is inadequate or incomplete, executives are still liable. As a result, auditing an organization’s FLSA classifications is more important than ever – especially to executives.