Labor & Employment Law

Personal Liability Under The FLSA: The Issue Of Contro

By Mark Tabakman

 When can the Department of Labor or plaintiff lawyers go after the officers and owners of a company for unpaid wages due employees?  That is an extraordinarily important question because all individuals who go into business, especially those who incorporate, are doing so to gain legal protections and to avoid, if things go 'south,' being found liable for debts of the corporation.

In a recent case, a federal court has held that the CEO and COO of a trucking company in dire financial straits did not exercise operational control over the terms and conditions of employment of the plaintiffs as to be deemed 'employers' under the Fair Labor Standards Act and thus personally liable for FLSA violations.  The case is entitled Solis v. Velocity Express, Inc. and was filed in the Western District of Oregon.  The Secretary of Labor claimed that since each of the officers possessed a significant financial interest in the company, as well as exercising financial control and supervisory authority over the individuals who actually handled the daily operations, these individuals should be 'employers.'

The US DOL had taken the position that the Portland-based delivery drivers were improperly denied overtime wages tried to impose personal liability, in a broad-stroke action.  The federal judge disagreed with this approach, finding that, under the government's theory, almost any corporate officer could be considered an 'employer' under the FLSA.  This would transgress against the Congressional intent, which was that supervisory/management employees would not be held personally liable for unpaid employee wages.

The court focused on the 'economic realities' test, which mandates control be directly exercised over the working conditions of the employees, such as keeping their time records and directing compensation decisions.  Under that rationale, there was no personal liability Here, the facts showed that the CEO really had a very minor financial interest, i.e. 0.85 percent of the stock; the COO owned only 0.18 percent.

The court noted that there must be a direct relationship between the officer's decision and the FLSA violation. Herein, major operational decisions were made at a number of hierarchical levels of the company.  There was, tellingly, no evidence that either of these officers were involved in those decisions.  Therefore, the court concluded that the 'supervisory relationship between these corporate officers and the delivery workers is too attenuated to support personal liability under the FLSA.'

The lesson for employers—if you a corporate officer or owner does exercise this kind of supervisory/operational control, that officer/owner should make absolutely sure that FLSA (and state wage hour law) obligations are being totally met, or they will face personal liability.

Full post as published by Wage & Hour - Development & Highlights on October 18, 2010 (boomark / email).