I do a lot of wage hour defense and one of the threats I constantly come up against is a Department of Labor telling me that the owner of the Company or corporate officers will be held personally liable for unpaid wages if the company cannot pay. Now, this can be a long, cumbersome process and may take years, but no owner or officer wants that hanging over them. Now, this potential must be based on the wording of the State law involved. One State has just concluded that this cannot happen. The case is entitled Cornell et al. v. Benedict et al., and issued from the Virginia Supreme Court.
The Court just held that an individual may not face personal liability as an “employer” under the Virginia Wage Payment Act, Va. Code § 40.1-29, which was just amended. Two years ago, the law was amended to allow to give employees the ability to file lawsuits on their own, without DOL involvement, either singly or as a collective/class action in line with the procedures inherent in the Fair Labor Standards Act.
The employees sued their employer and named two former Board Members as individuals. They claimed the company and the individuals violated the law by not paying their final wages when the company went under and closed. They contended that the term “employer” should be interpreted in the same manner as it is under the FLSA. The lower court dismissed the claims against the two Board members, concluding that the State definition was not as broad or expansive as the federal counterpart.
The Supreme Court of Virginia agreed that personal liability did not lie against the Board members. The Court examined how the word “employer” was defined and discerned a “conspicuous difference in statutory language” between the federal and State laws. The Court noted that the FLSA defined “employer” to be “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The State law conspicuously omitted the word “person” but connected the “employer” only with the entity or company. Thus, there was exhibited by the Legislature a “conscious decision with deliberate implications” as to who could be held liable (or not). Simply put, the Court ruled that a person could not be an “entity.”
Individual liability can be (and is) a big hammer for agencies and plaintiffs to try to wield in an effort to secure alleged monies due. Many States, like New Jersey, define “employer” to include any person or individual. However, it remains incumbent upon the defense counsel to probe the meaning of the term under the particular jurisdiction and find a way to defend an allegation that the officers/owners are personally liable.
Keep looking (hard)…