Ninth Circuit Decision on Individual Manager Liability Under FLSA

This case arises out of Nevada, but it has parallels in California law that make it worth reading. In Boucher v. Shaw (9th Cir. July 27, 2009), the Ninth Circuit looked at whether an employer's individual managers could be held liable for unpaid wages under Nevada law or the Fair Labor Standards Act (FLSA). The Ninth Circuit certified the first issue to the Nevada Supreme Court, which held that the managers could not be held liable under Nevada law. The Ninth Circuit held that the managers could be held liable under FLSA.

Plaintiffs sued three individuals: the employer's chairman and CEO; the CFO; and the person responsible for handling labor and employment matters. Between them, the CEO and CFO owned 100% of the employer. The plaintiffs alleged that each defendant had custody or control over the “plaintiffs, their employment, or their place of employment at the time that the wages were due.” The District Court granted the individuals' motions to dimiss, and the plaintiffs appealed.

The Ninth Circuit reversed and remanded. First, the Court noted that the FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee . . . .” 29 U.S.C. § 203(d). Citing cases going back to Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947), the Court then noted:

[T]he definition of “employer” under the FLSA is not limited by the common law concept of “employer,” but “ ‘is to be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes.’ ” The determination of whether an employer-employee relationship exists does not depend on “isolated factors but rather upon the circumstances of the whole activity.”

***

Where an individual exercises “control over the nature and structure of the employment relationship,” or “economic control” over the relationship, that individual is an employer within the meaning of the Act, and is subject to liability.

With these principals in mind, and accepting the complaint's allegations as true, the Court held that the District Court erred in granting the motions to dismiss. The Court further held that the employer's bankruptcy filing had "no effect" on the claims against the individual managers under the FLSA, a point that the individuals tried to rely on. "[T]he managers are independently liable under the FLSA, and the automatic stay has no effect on that liability."

Given Reynolds v. Bement and its progeny and the fact that we still don't have a ruling in Martinez v. Combs, employees left holding the bag when their employer goes out of business or files for bankruptcy should carefully consider whether the employers individual managers can be held liable under the FLSA.

Another Decision for Employees on Independent Contractor Status

Although not every case on independent contractor status has gone in favor of the employees, the list of such cases is long and growing. This testifies in part to the efforts of employers to avoid their obligations by calling their employees independent contractors. It also testifies to the broad efforts by employees and government agencies to fight this growing trend.

In Messenger Courier Assn. of the Americas v. Cal. Unemployment Ins. Appeals Bd. (July 15, 2009), the Fourth District Court of Appeal held that the Appeals Board got it right when it assessed unemployment insurance employer contributions and penalties against a courier service that designated its drivers as independent contractors, rather than employees. NCM Direct Delivery v. Employment Development Department, Precedent Tax Decision No. P-T-495 (2007). The Court held that the Board properly applied the mutli-factor test found in SG Borello and Sons and other cases to the unemployment insurance case at issue, rather than relying only on the common law right of control test.

Quote of the Week: MLK

All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.

Dr. Martin Luther King, Jr.

Supreme Court To Decide Whether Charter City Must Follow Prevailing Wage Law

The Supreme Court has granted review in State Bldg. and Const. Trades Council of California, AFL-CIO v. City of Vista (2009) 93 Cal.Rptr.3d 95. The case addresses an interesting issue: Whether a charter city must follow the prevailing wage law with respect to public works contracts that are financed solely from city revenues. The City of Vista decided not to follow the prevailing wage law in its construction contracts, and the AFL-CIO filed suit. Both the trial court and the Court of Appeal held that the city need not comply with the prevailing wage law. As stated by the Court of Appeal:

We conclude the PWL does not address matters of statewide concern and therefore Vista, as a charter city, is not required to comply with the PWL with respect to public works contracts which are financed solely from city revenues. Rather, such contracts are municipal affairs over which Vista has paramount power under article XI, section 5, subdivision (a) of the California Constitution.

Amazingly, the Court of Appeal did not mention a long line of cases holding that the prevailing wage law is a minimum wage law that guarantees a minimum cash wage for employees on public works contracts and that serves the important public policy goals of protecting employees on public works projects, competing union contractors, and the public. See cases cited in Road Sprinkler Fitters Local Union No. 669, v. G & G Fire Sprinklers, Inc. (2002) 102 Cal. App. 4th 765, 778-779.

It will be interesting to see where the Court comes down on this one. The Court's docket is here.

Follow-Up on Hiestand v. City of Sacramento

Kim Kralowec obtained a copy of the complaint discussed in my post yesterday. She added an interesting discussion of standing, class certification, and recovery issues arising under 17200 and In re. Tobacco II, which I discussed here. Kim's post is here.

Quote of the Week: FDR

No business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By living wages I mean more than a bare subsistence level -- I mean the wages of decent living.

President Franklin Delano Roosevelt in 1933, urging the passage of federal minimum wage legislation.

Employees of Unlicensed Subcontractor are Employees of General Contractor

In Sanders Construction Co, Inc. v. Cerda (2009) 175 Cal.App.4th 430, the Court of Appeal held that a general contractor ("GC") who hires an unlicensed subcontractor ("sub") is responsible for the wages of the sub's employees.

In Sanders, the GC’s contract with the sub included the costs of labor and materials: the GC paid the sub, and the sub paid its employees. When the GC stopped paying, the sub's employees filed DLSE wage claims against the GC for wages, interest, and “waiting time” penalties. 

The DLSE hearing officer looked to worker’s compensation law by analogy and held that the GC was the employees’ statutory employer because “Labor Code Section 2750.5 operates to conclusively determine that a general contractor is the employer of not only its unlicensed subcontractors but also those employed by the unlicensed subcontractors.” Section 2750.5 provides: “There is a rebuttable presumption affecting the burden of proof that a worker performing services for which a [contractors'] license is required... or who is performing such services for a person who is required to obtain such a license is an employee rather than an independent contractor.” 
The Court of Appeal agreed and determined that, for public policy reasons, employees can bring wage claims against GCs even if they were hired by an unlicensed sub: 

These same public policy considerations concerning the subterranean economy [applied in the worker’s comp context] could apply in the present circumstances. For example, an unscrupulous general contractor could collude with an unlicensed subcontractor to cheat workers hired by the subcontractor out of their wages, plus all the related benefits...We discern no meaningful distinction exists between being paid wages and receiving other benefits based on wages. In both instances, the same policy reasons militate against allowing a general contractor to escape liability for the obligations of an unlicensed subcontractor.

The GC argued that the employees, as unlicensed persons performing work for which a license was required, lacked standing to bring their claims, pursuant to Business and Professions Code Section 7301. The court rejected this argument, noting that Section 7503 limits the reach of Section 7301, excluding employees who do not have independent businesses and who do not have the right to control the manner of their work.

Thanks to Leonard H. Sansanowicz for his contribution to this post.