Individual Liability for Unpaid Minimum Wage and Overtime Claims
by Caitlin Szematowicz on February 10th, 2020 in Labor and Employment
Did you know that if you have managerial authority of a company – such as being an officer, owner, or director of a company – that you may be individually liable for an employee’s unpaid wages and/or overtime wages?
The Fair Labor Standards Act (“FLSA”) establishes minimum wage and overtime requirements that all employers are required to follow. The FLSA also defines an employer broadly.
Under the FLSA, an employer includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The FLSA thus contemplates lawsuits against any person who acts on behalf of a corporate employer and who asserts control over the conditions of the employee’s employment.
This definition of employer has been interpreted to generally mean anyone who has supervisory power over other employees. It is for this reason that under the FLSA a plaintiff may elect to directly sue officers, owners, and directors of the corporate employer in addition to the corporate employer. Essentially, what this means is that under the FLSA, an individual may be liable for unpaid wages and overtime if they exercise significant control over the company’s operations.
Whether an individual is liable under the FLSA is analyzed on a case-by-case basis, since the statute does not include a bright-line test. However, to be personally liable, an officer must either be involved in the day-to-day operation of the company or have some direct responsibility for the supervision of the employee.
How to Determine If an Individual Is Liable Under the FLSA
To make this determination of whether an individual is liable under the FLSA, the courts in unpaid wage cases may look at factors such as:
- whether the individual has a significant ownership interest in the corporation;
- whether the individual has personal responsibility for the decision that led to the conduct which allegedly violated the statute;
- whether the individual had control of significant aspects of the corporation’s day-to-day operations, including the compensation of employees, or whether the individual is responsible for day-to-day management of the company;
- whether the individual has the responsibility and/or the power to maintain employment records;
- whether the individual is responsible for the operations of company;
- whether the individual is responsible for setting the pay policies or whether the employer is responsible for setting the pay practices;
- whether the individual is responsible for setting the wages of the employees and/or has the power to determine salaries, and
- any other signs of operational control that demonstrate control over significant aspects of the corporation’s day-today functions.
Federal courts further look to the economic reality of the relationship between the parties in determining whether an individual defendant is an “employer” subject to FLSA liability. This test examines whether the individual: (1) has the power to hire and fire employees, (2) supervises and controls employee work schedules or conditions of employment, (3) determines the rate and method of payment (in other words, the individual is responsible for setting the employer’s pay), and (4) maintains employment records. The case law in the Eleventh Circuit – the controlling federal appellate court in Florida – has previously looked to whether the individual controls the financial affairs and exercises substantial supervisory powers.
In fact, an officer, owner, director, and/or manager can also be liable for damages under a general theory known as “piercing of the corporate veil.” The result of piercing the corporate veil means that a corporation’s shareholder becomes liable for the corporate liabilities. The Eleventh Circuit held in Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1349 (11th Cir. 2011) that to state a cause of action for piercing the corporate veil, a plaintiff must show the following factors:
- the individual shareholder dominated and controlled the corporation to such an extent that the shareholders were alter egos of the corporation;
- the corporate form was used for an improper purpose; and
- the improper use of corporate form caused injury to the claimant.
If the plaintiff fails to allege improper conduct such as fraud in the formation or use of the corporation, there is a failure to allege sufficient facts to proceed under an alter ego theory, and the case will be dismissed. The plaintiff must show the corporation is the alter ego of the shareholders and that it was employed for fraudulent or misleading purposes.
What to Do If Faced With an Unpaid Wage Lawsuit
If you are an individual faced with an unpaid wage lawsuit and the plaintiff has sued you individually, it is very important to meet with an experienced employment law attorney who can review and aggressively defend the lawsuit. If the plaintiff has alleged insufficient facts or cannot establish that they are entitled to judgment as a matter of law, then you may be entitled to a dismissal of the case or a judgment without the necessity of a trial.
In fact, there are numerous labor & employment cases where an individual was sued for liability for unpaid wages or overtime, and the court found that there was no liability. It is important to have an experienced employment attorney who is familiar with this case law. For instance, if the individual does not have operational control of significant aspects of a company’s day-to-day functions, then that individual is not an FLSA employer.
This body of case law has held that no individual liability lies where the individual did not take such an active role as to be held personally responsible: the individual did not arrange contracts, manage day-to-day operations, or oversee employee compensation. Another case found that no individual liability existed when the individual did not direct the day-to-day operations of the business, did not set employee schedules, did not contract with vendors or employees, and could not hire or fire employees.
It is important to ensure that as a company, you are complying with all wage and overtime laws. Not only can your company face a lawsuit for a violation, but the officer, owners, directors, and/or managers can face exposure as well.
The law firm of Battaglia, Ross, Dicus & McQuaid, P.A. handles and defends unpaid wage and overtime wage claims. For more information, please contact our office at 727-381-2300. Our labor law attorneys will provide a free initial consultation and will aggressively represent your interests.