Boucher v. Shaw: Individual Manager Liability for Wage and Hour Violations
In Boucher v. Shaw, 2009 U.S. App. LEXIS 16555 (9th Cir. 2009), the Ninth Circuit Court of Appeals held that former employees of the bankrupt Castaways Hotel could pursue federal wage and hour claims filed personally against the CEO, CFO and other officers of the corporation.
The Castaways Hotel, Casino andBowlingCenterfiled for Chapter 7 liquidation bankruptcy in 2004. The plaintiffs represent a class of employees terminated in connection with the bankruptcy. Their complaint alleged claims for unpaid wages, vacation and holiday pay under the federal Fair Labor Standards Act (“FLSA"). Among others, the lawsuit named the CEO, Dan Shaw, who owned 70% of the bankrupt corporation, as well as the CFO, Michael Villamor, who owned a 30% interest. The district court granted a motion to dismiss filed by the defendants on the grounds that they could not be held personally liable for the corporation’s alleged failure to pay wages as required by the FLSA.
The plaintiffs appealed, and the Ninth Circuit reversed. The FLSA defines the term “employer" as “any person acting directly or indirectly in the interest of an employer in relation to an employee." Title 29 U.S.C. § 203(d). The Boucher court noted that courts are required to examine the “economic reality" of the relationship. In appropriate cases, an individual who exercises “control over the nature and structure of the employment relationship," or “economic control" over the relationship, may be considered an “employer" for FLSA purposes. Because the plaintiffs in Boucher alleged that the CEO, CFO and others had “control and custody of the plaintiff class," ownership interests in the corporation, and responsibility for cash management and employment matters, the court determined that a jury question existed as to whether these individuals were responsible for the alleged wage and hour violations.
Cases like Boucher should remind managers, officers and owners that they are not always protected from liability for wage and hour claims. As the number of bankrupt employers rises, lawsuits against individual owners/managers with the potential means to pay corporate debts should only increase. Although the California Supreme Court has held that corporate officers are not liable for state law wage and hour claims, Reynolds v. Bement, 36 Cal. 4th 1075 (2005), the federal standards differ and apply with equal force to most California employers. It should also be noted that courts have found other ways to hold owners liable for state law wage and hour violations, either on the theory of “joint employment" or relying on provisions of the Labor Code that permit recovery against a person who “causes" a violation. Ontiveros v. Zamora, 2009U.S. Dist. LEXIS 13073 (E.D. Cal. 2009). In other words, owners and managers should not assume that a corporate bankruptcy will automatically allow officers and other managers to walk away from wage and hour liability – particularly those officers or managers with substantial ownership interests in the corporation.