Wage and Hour Guidance: Individual Liability for Officers and Directors Under the FLSA

Introduction

Corporate directors, officers, and agents need to be aware of the potential personal risks associated with the non-payment of wages to their company’s employees. Although the existence of a corporate or other business-entity form generally provides protection from individual liability for corporate actors, one significant exception is for claims brought pursuant to the Fair Labor Standards Act (“FLSA”). A corporate director, officer or agent’s own individual assets may be used to satisfy any judgment for unpaid wages in favor of the company’s employees. As employers continue to deal with the economic downturn, and more companies are finding themselves struggling to meet payroll, corporate officers, directors, or agents may more frequently find themselves the individually-named targets of an FLSA lawsuit.

Fair Labor Standards Act

The FLSA provides that “[e]very employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise in commerce,” a minimum wage. As to liability for failure to pay such wages, the FLSA requires “any employer who violates the provisions of [this] section shall be liable to the employee or employees affected in the amount of their unpaid minimum wage, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.”

Although these wage and hour basics are par for the course for any company, many officers and directors are nonetheless surprised to learn that they personally are considered the “employer” for purposes of the the FLSA. The FLSA broadly defines an “employer” as “any person who acts, directly or indirectly, in the interest of an employer to any of the employees of such employer.” (Emphasis added). Likewise, the New Jersey Wage and Hour Law, the New York Labor Law, and the Pennsylvania Wage Payment and Collection Law similarly include individual persons in their definitions of “employers.” As a result, liability under the FLSA or corresponding state statute for failure to pay employees’ wages applies with the same force and effect to individual corporate defendants, jointly and severally, along with the company itself.

Individual Liability

For individual corporate defendants, the FLSA’s definition of “employer” has been applied in circumstances where that individual had “operational control over the corporation.” Courts have consistently given an expansive interpretation of the term “employer” under the FLSA so as to effectuate the Act’s broad remedial purposes. To illustrate, courts focus on a number of factors, including, but not limited to: (a) the significant ownership interest of the corporate officers; (b) their operational control of significant aspects of the corporation’s day-to-day functions, including compensation of employees, hiring and discharging employees, and establishing other terms and conditions of employment; (c) the role played by the corporate officer in causing the corporation to under-compensate employees and to prefer the payment of other obligations and/or retention of profits. Importantly, there may be instances in which there are several simultaneous “employers” under the FLSA, any one of which is responsible for compliance with the Act and may be held liable. In other words, the fact that a corporate defendant is considered an employer under the FLSA does not preclude a determination that others are also employers for the purposes of the FLSA.

Depending on the facts of the case, courts have held corporate actors liable (in their individual, not representative, capacity) along with any other corporate entity or individual meeting the definition of “employer.” The potential exposure of officers, directors and agents includes back-pay, penalties, attorneys’ fees, liquidated damages, or any other relief a court may award in an FLSA lawsuit.

Conclusion

Individual corporate officers, directors and agents need to be mindful of the FLSA’s provisions regarding personal liability. To that end, corporate actors must ensure the prompt payment of all accrued employee wages. Should your company find itself unable to pay timely wages to your employees, consider options that could help avoid or minimize an unpaid wage claim, such as a possible reduction in pay rates, periodic furloughs, changes in vacation and/or PTO policies, or reductions in force. Of course, before implementing any of the aforementioned alternatives, please feel free to contact one of the attorneys in the Gibbons Employment & Labor Law Department.