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Individual Liability under the Fair Labor Standards Act

by Martin Salcedo, Esq. - The Human Equation on 4/3/2013
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Did you know that individuals can be held personally liable for violations of the Fair Labor Standards Act (FLSA)? The FLSA’s broad definition of employer includes “any person acting directly or indirectly in the interests of an employer in relation to an employee.” The Eleventh Circuit Court of Appeals recently considered when it is appropriate to hold someone personally liable for wage and hour violations under the FLSA.

In Lamonica v. Safe Hurricane Shutters, Inc., former employees sued their employer to recover unpaid overtime wages under the FLSA. The employees also sued two of the corporate-employer’s directors, arguing that they sufficiently controlled the corporation to justify holding them personally liable under the FLSA. To support their case against the directors, the employees showed that:

  • Each owned 22.5% of the corporation.
  • Both visited job sites to observe progress, and one routinely distributed work orders and job assignments.
  • Both met with employees to discuss financial problems and promised they would try to get them paid.
  • One used his own funds to satisfy the corporation’s payroll obligations.

Even though one director worked two weeks per month and the other never worked more than one week per month, the jury found for the plaintiffs and against the defendants, including the two directors. The directors appealed and asked the court to determine whether it was proper to hold them individually liable under the FLSA.

Though individuals are ordinarily shielded from personal liability when they do business in a corporate form, the court noted that it was Congress’s intent to impose liability upon those who can cause the corporation to compensate (or not to compensate) employees in accordance with the FLSA. This is why a corporate officer with operational control can be considered an employer under the FLSA.

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However, since traditional corporate roles are not always observed, the court held that determining whether an individual can be held personally liable depends on all the facts and circumstances of a particular situation rather than technical or isolated factors. In deciding whether the jury’s decision to hold the two directors personally liable in this case, the court observed that:

  • Non-officers may be held personally liable under the FLSA.
  • Job title alone does not establish or preclude personal liability under the FLSA.
  • An individual’s ownership interest in the corporation is relevant when evaluating his or her role in violating the FLSA.
  • To qualify as an employer under the FLSA, an individual must either be involved in the day-to-day operations or have some direct responsibility for the supervision of employees.
  • For purposes of determining personal liability, an individual’s control must be evaluated in relation to the employee-plaintiff.
  • An individual must have control over significant aspects of the company's day-to-day functions, including compensation of employees or other matters in relation to an employee. Though this control does not have to be continuous, it must be substantial.
  • An individual can exercise enough control to play a substantial role in causing a violation under the FLSA despite only working part-time.

With these principles in mind, the court held that it was not improper for the jury to conclude that the directors had enough control over day-to-day functions and compensation matters to hold them personally liable under the FLSA. Accordingly, the court ruled against the directors and affirmed the jury’s verdict.

This outcome should be more than enough motivation for owners, managers and supervisors to comply with the FLSA’s wage and hour requirements.

If you would like to learn more about wage and hour requirements under the Fair Labor Standards Act, click here. If you would like information about insuring against FLSA claims, click here.

The Human Equation prepares all risk management and insurance content with the professional guidance of Setnor Byer Insurance and Risk.

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5/1/2018 9:53:00 AM #

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Intern or Employee? Department of Labor Adopts More Flexible Economic Realities Test

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