Co-owner of Business may also be an "Employee" for purposes of FLSA

Plaintiff was a co-owner of Madera Honda Suzuki. After investing $100,000 with her husband she then became a co-owner. Plaintiff was responsible for paying bills and she had authority to pay certain expenses, such as rent and dealership insurance, without consulting the other officers. Plaintiff was authorized to issue payroll checks to herself and others if the company had sufficient funds, and it appears Plaintiff issued a check to herself at least once during her tenure as CFO. Plaintiff interviewed prospective employees and she had a say in everybody the company hired. She also handled employee disciplinary matters 95% of the time and was not required to consult with her co-owner before terminating an employee. Defendants moved for summary judgment contending that plaintiff was a co-owner, not an employee of Madera Honda Suzuki. The Court went on to examine other evidence that plaintiff was not merely a director, officer and shareholder, but was also hired to work as the company’s office manager. She was initially paid hourly wages for working as the office manager, at a rate determined by her co-owner. After reviewing these facts, the Court conceded that its research revealed no authority — stating categorically that a co-owner and shareholder of a closely held corporation, who works for the corporation in another capacity, cannot also be the corporation’s employee for the purpose of the FLSA. Indeed, the Court stated, case law seems to suggest otherwise. The Court then cited Goldberg v. Whitaker House Co-op, Inc. , 366 U.S. 28, 32, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961) (“There is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship. If members of a trade union bought stock in their corporate employer, they would not cease to be employees within the conception of [the FLSA]. For the corporation would ’suffer or permit’ them towork whether or not they owned one share of stock or none or many”). The Court concluded that the possibility an individual could simultaneously be both an owner/employer and an employee exists. Support for this proposition, one court has observed, may be found in the FLSA itself. As noted, “employee” refers to “any individual employed by an employer. 29 U.S.C. § 203(e)(1).” ’Employ’ includes to suffer or permit to work. 29 U.S.C. § 203(g). “[I]t appears from this language that if an owner or manager performs work, as here,”that person fits within the definition of employee.”

After reviewing several analogous cases involving employees who had a proprietary interest in their respective employers, the Court denied the Motion for Summary Judgment.

The Court expressed no opinion as to whether the plaintiff was an exempt employee under FLSA.

Hess v. Madera Honda, 2012 U.S. Dist. LEXIS 131584 (E.D. Cal. Sept. 14, 2012).