Gao v. Kerry Nails Salon Corporation

Background

Lei Gao, Wen Tao Liu, and Shuai Sun sued Kerry Nails Salon Corporation, doing business as Kerry Nail Spa, Xue Gou, and Tie Ming Xu. They alleged violations of wage and overtime laws, including the Fair Labor Standards Act (FLSA). Gao worked as a nail technician during parts of 2016 and 2018 and throughout 2017. Liu worked as a manicure and pedicure assistant during 2017 and part of 2018. Sun worked as a nail technician from April 30, 2017, through May 5, 2018.

The defendants moved for summary judgment on whether the FLSA covered the salon. Summary judgment is a decision without a trial when the moving party shows that no genuine dispute exists about facts that could affect the outcome. The defendants argued that the FLSA did not apply because no employees handled goods or materials that had moved in interstate commerce and because the salon’s annual sales were below the statutory $500,000 threshold.

Report and Recommendation

The court had referred the motion to Magistrate Judge Katharine H. Parker. Judge Parker recommended denying the motion in a Report and Recommendation, which is a magistrate judge’s proposed decision for the district judge. Neither side objected. Because there were no objections, the district court reviewed the recommendation for clear error and adopted it in its entirety.

FLSA Coverage

The plaintiffs relied on enterprise coverage under the FLSA. That form of coverage requires proof that employees handled, sold, or otherwise worked on goods or materials that moved in interstate commerce and that the enterprise had at least $500,000 in annual gross sales or business volume.

The court held that the first requirement was met for purposes of summary judgment because salon employees handled products such as nail polish and nail polish remover that had traveled in interstate commerce. The court treated this requirement as generally easy to establish.

The defendants relied on unsigned tax forms listing annual revenue of $356,004 for 2016, $406,765 for 2017, and $212,883 for 2018. The court explained that tax forms are not automatically reliable or authentic and that unsigned forms are especially subject to challenge. The defendants’ accountant’s affidavit did not resolve the issue because the accountant lacked personal knowledge of the salon’s revenue. The plaintiffs’ affidavits and payroll records also created a material factual dispute about the accuracy of the 2017 tax form and the salon’s revenue. The court stated that resolving conflicting evidence was not appropriate on summary judgment.

Disposition

Judge Paul G. Gardephe adopted Judge Parker’s Report and Recommendation in full and denied the defendants’ motion for summary judgment. The court directed the clerk to terminate the motion. The order stated that the matter would proceed to trial on October 18, 2021.