## Facts

- Nine Chinese garment workers alleged they worked from about 1996 to 2000 in two factories producing women’s sportswear for Street Beat Sportswear, Inc.
- Plaintiffs claimed they worked long hours under harsh conditions and were not paid minimum wage or overtime required by the Fair Labor Standards Act (FLSA) and New York Labor Law.
- Plaintiffs alleged Street Beat and its principals contracted with the factories to produce garments and supplied designs, instructions, textiles, trimmings, and other materials.
- Plaintiffs alleged the manufacturer defendants knew or should have known the factories engaged in wage-and-hour violations, including due to prior Department of Labor (DOL) investigations.
- Plaintiffs alleged Street Beat entered into a written compliance agreement with the DOL after an investigation found FLSA violations; the agreement required Street Beat to fund back wages for distribution to affected workers and to implement compliance measures at contracting factories.
- Plaintiffs asserted (1) statutory wage claims and (2) state-law claims against the manufacturer defendants for negligence (negligent hiring/supervision/monitoring) and for breach of contract as intended third-party beneficiaries of the DOL compliance agreement.
- The manufacturer defendants moved to dismiss the negligence and third-party beneficiary claims under Federal Rule of Civil Procedure 12(b)(6).

## Issues

1. Whether New York Workers’ Compensation Law exclusivity bars negligence-based claims seeking recovery for alleged wage underpayment and related economic harm.
2. Whether the workers plausibly alleged they were intended third-party beneficiaries of the DOL compliance agreement, permitting a breach-of-contract action against Street Beat.

## Decision

- The court denied the manufacturer defendants’ Rule 12(b)(6) motion in full.
- The negligence claims were not dismissed on workers’ compensation exclusivity grounds and were sufficiently pleaded to proceed.
- The third-party beneficiary breach-of-contract claim based on the DOL compliance agreement was sufficiently pleaded to proceed.

## Legal Principles

- New York Workers’ Compensation Law exclusivity principally addresses workplace injuries; it does not automatically bar claims centered on unpaid wages and other economic loss tied to alleged wage-and-hour violations.
- At the pleading stage, allegations suggesting knowing or intentional participation in, or disregard of, wage violations can further weaken reliance on workers’ compensation exclusivity as a bar to related common-law claims.
- Under New York law, a third party may enforce a contract when the agreement shows an intent to benefit that party and the benefit is sufficiently immediate rather than incidental.
- A compliance agreement between an employer and a government agency can support intended-beneficiary status where the agreement expressly provides for payment of back wages to employees and imposes concrete compliance obligations, and where it does not expressly preclude third-party enforcement.

## Conclusion

The court allowed the workers’ negligence and contract theories against the manufacturer defendants to proceed past the pleadings, holding that workers’ compensation exclusivity did not bar wage-centered claims and that the complaint plausibly alleged the workers were intended third-party beneficiaries of Street Beat’s DOL compliance agreement.


Chen v. Street Beat Sportswear, Inc., 226 F. Supp. 2d 355 (E.D.N.Y. 2002)