March 13, 2018

The Corporate Liability Shield Pierced–Executives are Personally Liable for Wage and Hour Violations

A Federal District Court held that a corporation’s CEO and CFO can be held personally liable for the company’s non-payment of an employee’s wages (Boucher v. Shaw, 572 F.3d 1087 (2009)).

In Boucher, several employees sued the company and its two owners (the CEO and CFO) for unpaid wages, vacation, and holiday pay under the Fair Labor Standards Act (“FLSA”). The court held that a person who exercises “control over the nature and structure” or has “economic control” over the employment relationship is personally liable for FLSA violations. The Court looked a several factors including control of the employees, ownership interests in the company, and responsibility for management and employment matters. If the foregoing are present, the liability shields afforded by corporate organizations (C Corp, S Corp, LLC) are of no effect. Thus validating our firm’s mantra, “always pay your employees.”

Skirting the control issue is nearly impossible for most small and medium businesses, who must give some concerted effort on assuring they have legal and accurate payroll, reporting and paid time off procedures. This case, together with other unpublished cases recently decided, should provide the requisite impetus for companies to have their organizational documents and HR procedures reviewed.

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