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Monday, August 31, 2009

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.

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