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Eleventh Circuit Decision Illustrates Breadth of the Term “Employer” Under the Fair Labor Standards Act and the Ramifications of Stipulations

September 24, 2024

By: Veronica J. Mina

     In Spears v. Bay Inn & Suites Foley, LLC, 105 F.4th 1315 (11th Cir. 2024), the United States Court of Appeals for the Eleventh Circuit held that Rick “Sunny” Patel, Jr. (“Sunny”), a wage-earning hotel manager, qualified as an “employer” under the Fair Labor Standards Act (“FLSA” or “the Act”).  The Eleventh Circuit also held that the federal district court erred by failing to give the employer credit for the stipulated value of the employee’s lodging when it calculated his unpaid minimum wages because the stipulated value was binding on the parties and it removed the employer’s burden of proving the reasonable costs of lodging.

     William Spears (“Spears”) worked as a Front Desk Clerk at hotels in Alabama operated by Rick Patel, Sr. (“Rick”), and his son, Sunny.  Sunny was compensated with monthly paychecks and onsite lodging.  Spears also received onsite lodging, which the parties stipulated was worth $630.00 per week.  Because Rick was based in Florida, Sunny handled the day-to-day operations at the Alabama hotels and was Spears’ immediate supervisor by assigning him tasks to perform, scheduling shifts, and signing his paychecks on occasion. 

     After the parties’ relationship went sour, Spears sued the Patels and the hotel entities under the FLSA for wages owed and unpaid overtime.  The Eleventh Circuit affirmed the district court’s decision that Sunny qualified as an “employer” under the FLSA because Sunny was involved in the day-to-day operation of the hotels and exercised some financial control.  However, with respect to whether the district court properly disallowed the employers from receiving a credit for the cost of Spears’ lodging when calculating his unpaid minimum wages, the Eleventh Circuit disagreed with the district court and held that, because the parties stipulated to the value of Spears’ lodging, it relieved the employer of the burden of proving that value at trial.  In other words, the employer “substantiated it by stipulating to it.”

     As to the first issue, the Eleventh Circuit acknowledged that the FLSA creates a private right of action against any employer who violates its minimum wage or overtime provisions.  The FLSA defines “employer” broadly to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.”  This broad definition does not turn on technical or isolated factors, but on the circumstances of the whole activity.  Under the FLSA, mere ownership is not dispositive for individual liability and the Act does not limit liability only to officers and owners.  The court explained that, to be an employer, a supervisor “must either be involved in the day-to-day operation or have some direct responsibility for the supervision of the employee.”  That involvement includes substantial control over significant aspects of the company’s day-to-day functions, including compensation of employees or other matters in relation to an employee.  Further, involvement in the day-to-day operations of a business can include regular visits to the company’s facilities, the power to determine employees’ salaries, involvement in the business operations of the company, or control over the company’s purse strings.  With this broad definition in mind, the court found that Sunny was Spears’ employer because Sunny was involved in the day-to-day operations by living at one of the properties, supervising Spears’ daily job activities, giving Spears tasks, and setting Spears’ work schedule.  In addition, Sunny was the only other employee (besides his father) who could sign a paycheck and adjust room rental rates.  As a result, Sunny had some direct responsibility for the supervision of Spears and, therefore, was rightfully deemed Spears’ employer.

     Aside from Sunny’s status as an employer, the Eleventh Circuit also held that Sunny and his father, Rick, should have received a credit for the stipulated value of Spears’ lodging when calculating his unpaid minimum wages.  When a court calculates the back wages that an employee is due under the Act, the employer “is entitled to a credit for the reasonable cost of providing the meals and lodging.”  Reasonable cost is defined as “not more than the actual cost to the employer of the board, lodging, or other facilities customarily furnished by him to his employees.”  Employers must keep certain records of the cost incurred, however, but keeping those records is not a prerequisite for getting credit, as courts have considered other evidence that an employer could use to prove reasonable cost.  In this case, for example, the parties stipulated to the value of Spears’ lodging, which the Eleventh Circuit held was sufficient to relieve the employers of the burden of having to prove the reasonable cost of lodging.  Spears’ tactical decision to stipulate to the value of lodging meant that it was a non-issue and the district court should have provided the employers with the credit they were due under the FLSA.

     The Eleventh Circuit’s decision in Spears provides an important reminder that the FLSA defines what constitutes an “employer” broadly, so much so that an “employer” is not limited to owners or officers of a business; it expands to anyone who is involved in the day-to-day operations or has some direct responsibility for the supervision of employees.  Litigants also must be cognizant of the fact that they may always stipulate to facts that would otherwise be one party’s burden to prove, and those stipulations are binding in civil cases.  Employers and employees should evaluate the pros and cons of any tactical decision to bind themselves to a stipulation to ensure that they are not waiving any rights by doing so.