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Individual Liability for Wage and Hour Claims

by Kara E. Shea

I recently participated in hosting a Wage and Hour Virtual Summit webinar. Wage and hour compliance — overtime, work-time issues, exempt status — is always a lively topic and typically results in lots of questions and feedback. This time around, most of the feedback surrounded remarks I made about individual liability under the Fair Labor Standards Act (FLSA). Many of the webinar attendees thought they had misunderstood me and expressed disbelief that real live human beings could face exposure for wage and hour violations. Nevertheless, it’s true.

Wage and Hour Virtual Summit

The FLSA recognizes the concept of “joint employment,” meaning that an employee may be deemed to have more than one employer at the same time. The Act defines “employer” as “including any person acting directly or indirectly in the interest of an employer in relation to an employee.”

That means that in certain situations, a court or the U.S. Department of Labor (DOL) may consider an individual to be an “employer” of someone filing suit under the FLSA — along with the business, agency, or enterprise “employer.” Owners, officers, managers, and HR personnel are the individuals most likely to be deemed joint employers under the Act.

Individuals can be “employers.” Any individual who is held to be an “employer” under the FLSA will be jointly liable (along with the business and any other individual “employers”) for any back pay, liquidated damages, attorneys’ fees, penalties, or any other costs associated with a violation. That’s a situation of direct liability. Unlike in other contexts, someone filing suit under the FLSA doesn’t need to “pierce the corporate veil” — such as by showing improper intermingling of personal and business funds — to reach individual defendants.

I think there is a false sense of security among business owners and officers because they’re so used to thinking of the business as a shield against any personal financial exposure, and that simply isn’t the case with the FLSA. In a worst-case scenario, enforcement of an FLSA judgment could reach an individual employer’s personal assets, including bank accounts, homes, and other property.

That’s very different from federal antidiscrimination laws (such as Title VII of the Civil Rights Act of 1964), where individuals typically won’t be liable for violations. Moreover, individual liability may apply to any and all FLSA violations, even unintentional or technical violations. That’s a particularly dangerous situation when it comes to the FLSA, which encompasses many confusing and counterintuitive requirements and prohibitions.

Wage and Hour Compliance Manual

Who’s in control? Every owner, officer, or manager of a business won’t necessarily be deemed an employer. There is a threshold that must be met. It’s a complicated issue, with the determinative factors varying from jurisdiction to jurisdiction, but the nutshell version is that an individual must have a significant level of financial control within the organization and/or must play a significant role in making personnel decisions and setting pay policies to be held liable under the FLSA.

I have been involved in cases in which a company’s owners, officers, managers, and/or HR personnel have been sued individually (or at least threatened with suit) for FLSA claims. I have also researched this issue exhaustively in all jurisdictions. The outcomes of these claims are very fact-specific and difficult to predict and frequently come down to the judge’s viewpoint on the issue.

In one case, I was successful in getting the company’s HR director and its CFO dismissed from the case, but the court refused to dismiss the claim against the president/CEO/majority shareholder of the company because of the level of financial control he had and his involvement in the day-to-day running of the business, including making decisions about the company’s compensation structure and FLSA compliance issues.

State-by-state comparison of 50 employment laws in all 50 states

Who has the deep pockets? Pursuit of individual defendants in FLSA cases seems to be a growing trend in this volatile economy because often the business being sued is on the verge of insolvency and more money is available from the individuals than from the company. Also, employees and their lawyers know that suing the owners and officers exerts more pressure on the company to settle the case.

Oh, and one more thing, everything I’ve said in this column applies to claims under the Family and Medical Leave Act (FMLA) as well. So you may want to point out to the owners, officers, and managers in your organization that they may have some very personal reasons to take steps to ensure FLSA and FMLA compliance, including conducting compliance audits and supervisory training — the sooner, the better.

Kara Shea is an editor of Tennessee Employment Law Letter and a partner with Miller & Martin PLLC, practicing in the Nashville office. She can be reached at (615) 244-9270.

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