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Are the Personal Assets of the Shareholders, Officers, Directors of a Business at Risk?

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In many of the wage and hour lawsuits being filed under the Federal Fair Labor Standards Act (FLSA), Plaintiffs seek to hold some individuals personally liable for claims of unpaid wages and overtime. Most businesses assert that only the company should be liable for any wage and hour violations and not the individuals – especially if the company is incorporated.

However, being a corporation does not necessarily provide financial protection to the individual owners, officers, shareholders, and even some managerial level employees from personal liability.

Because the FLSA applies only to employment relationships, the question becomes “who qualifies as an “employer” to determine the issue of whether the personal assets of the officers, directors, shareholders, etc., of the business are at risk . Under the FLSA the term “employer” includes :

“any person acting directly or indirectly in the interest of an employer in relation to an employee.”

Whether an individual qualifies as an “employer” is decided on a case-by-case basis, and the factors might vary. However, the more control an individual has over the employment relationship, the more likely it is that the individual will be deemed to be an “employer”. For example, if one of the officers maintains a significant level of financial control over a company and/or has a significant role in making personnel decisions and in establishing compensation policies, that person is more likely to be deemed an “employer” under the FLSA with potential for liability.

As a result of these decisions and the interpretation of the FLSA, many owners, officers, and even managers and HR personnel can find themselves to be the individually-named targets of an lawsuit and can be personally liable for unpaid wages and other remedies under the FLSA. This means that the individual’s personal assets could be used to satisfy any verdict.

With the economic concerns facing so many companies, and the reality of either bankruptcy or a business ceasing operations, naming individuals as defendants is likely to become an increasingly common tactic – suing more defendants means that there could be more pockets from which to collect a judgment.

This office recently settled a wage and hour case filed in Federal Court under the FLSA where the business, the majority shareholder and the administrator of the operation were all named as defendants. If this matter had gone to trial, the corporation, along with the shareholder and the administrator could have been found personally liable on the claims of unpaid overtime wages, missed meal and missed rest breaks.

What Should You Do?

 

  • As noted above, ensure that your wage and hour practices are all compliant with state and federal law.