Labor and Employment Law – Personal Liability in Fair Labor Standards Act Lawsuits

In most lawsuits, even those involving employment-based claims, the existence of a corporation provides protection for owners, corporate officers, and employees from personal liability. One significant exception is when the suit is brought under the Fair Labor Standards Act. Owners, officers, and high-level managerial employees who exercise some control over employment matters often find, to their dismay, that they have been included as a defendant in an FLSA lawsuit along with the corporate employer.

The reason for this potential personal liability arises from the extremely broad definition of employer found in the FLSA: “‘Employer’ includes any person acting directly or indirectly in the interest of an employer in relation to an employee…”

While the majority of cases finding an individual to be an employer involve owners or corporate officers, not all of them do, and the author is unaware of any case holding that that an employer must be an owner. The terms are not synonymous. See, e.g., Patel v. Wargo, 803 F.2d 632, 638 (11th Cir.1986) (a company’s president, director and principal stockholder did not take a sufficiently active role to be an “employer” under the FLSA).

On the other hand, not every exempt executive employee is, a fortiori, an “employer” simply because he or she exercises some managerial authority. The term “employer” is not so expansive that Congress intended that all supervisors be personally liable for FLSA violations. “[C]ourts generally reject ‘the idea that a low-level supervisor within a company can be individually liable.'” (citations omitted) Hernandez v. City Wide Insulation of Madison, Inc., 2006 WL 1993552 *2 (E.D.Wis.). Simply put, not every exempt executive employee is automatically an “employer.”

The test of employer status generally used by courts is a more complicated one looking at the “economic realities” of the relationship and requiring a careful analysis of the facts in a particular case. See, e.g., E.E. Falk v. Brennan, 414 U.S. 190 (1973). Courts have sometimes applied a four-part test in determining whether someone is an “employer”: whether the alleged employer (1) has the power to hire and fire employees; (2) supervises and controls employee work schedules or conditions of employment; (3) determines employees’ compensation; and (4) maintains employee records. Chung v. The New Silver Palace Restaurant, 246 F.Supp.2d 220, 227 (S.D. N.Y. 2002). Nevertheless, the determination is based on all the circumstances and no single factor is dispositive. Id. See Brock v. Superior Care, Inc., 840 F.2d 1054, 1059 (2d Cir.1988); Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 139 (2d Cir.1999).

Control may be restricted, or exercised only occasionally, without removing the employment relationship from the protections of the FLSA, since such limitations on control “do[] not diminish the significance of its existence.” Donovan v. Janitorial Servs., Inc., 672 F.2d 528, 531 (5th Cir. 1982). However, courts generally require proof, in order to find personal liability for an FLSA violation, that the individual in question is “responsible in whole or part for the alleged violation.” See, e.g., Riordan v. Kempiners, 831 F.2d 690, 694 (7th Cir.1987).

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