In June 2008, I wrote an article that corporate officers and managers could not be held liable for wage and hour violations (specifically unpaid wage claims). Only the company could be held liable if it was a corporation. The basis for that article was a California case that dated back to 2005. Well, that has now changed (somewhat). The Ninth Circuit Court of Appeals, (which covers California) has just ruled that corporate officers and managers don’t enjoy the same protection under the Fair Labor Standards Act (FLSA).
The ruling is based upon a set of events that started back in 2003. At that time the Castaways casino in Las Vegas, Nevada filed for bankruptcy, and then ceased operations in 2004. A handful of employees sued, claiming they hadn’t been paid their final wages or accrued vacation earnings. Since the corporation was in bankruptcy, the employees named three top level managers (the CEO, CFO, and the Labor Relations Manager, as defendants in the lawsuit. Both the trial court and the Nevada Supreme Court ruled that, under Nevada State law, individual managers and officers could not be held personally liable for unpaid wages and dismissed the case.
One employee then pursued his unpaid wage claims under the federal FLSA. Reversing the federal district court, the Ninth Circuit ruled in Boucher v. Shaw that under the FLSA’s definition of “employer,” if individual managers and officers control and direct the work of employees, and takes action that deprive those employees of earned wages, the individuals can be made to pay the employees out of their own pockets.
Now remember, this is on the federal level. California law still stands, however, if the employee seeks to hold managers and corporate officers liable, they would have to bring their claim in federal court. The other down side is that the costs to litigate at that level is going to be extremely high. All attorneys do not litigate in the federal courts. Their rules are so complicated that most attorneys shy away from it. Therefore both the plaintiff, and the defedant, must utilize the services of a specialist. If the defendant loses then they are also liable to pay the attorney fees of the plaintiff.
You don’t want to be in this position. Do what you can to get those wages paid if the company is going under. Skip the other bills if need be (except ours!!! LOL).