Despite Company Bankruptcy, Court Finds Managers Liable for Wages

The decision may not even resonate outside the court's jurisdiction, but the Ninth Circuit Court of Appeals has found that individual managers can be held liable for former employees' back wages even after a company has gone bankrupt. In a Nevada case, Boucher v. Shaw, former employees sued the CEO and CFO of the bankrupt parent company for back wages. After a District Court dismissal, the Nevada Supreme Court held that such action was not permissible under that state's laws, but the Appeals Court found wording in the Fair Labor Standards Act (FLSA) that made the CEO and CFO (who jointly owned 100 percent of the defunct company) liable. First, the Court noted that the FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee . . . .” 29 U.S.C. § 203(d). Citing cases going back to Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947), the Court then noted: [T]he definition of “employer” under the FLSA is not limited by the common law concept of “employer,” but “ ‘is to be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes.’ ” The determination of whether an employer-employee relationship exists does not depend on “isolated factors but rather upon the circumstances of the whole activity.” Again, this decision may not have legs or reverberate too far outside Nevada since it's been remanded back to the District Court that originally found no legal standing for the claim and thus dismissed it. Also, it's not clear whether the CFO and CEO would still have been considered liable had they not also been the company owners. This is one we'll watch to see what develops since it could have far-reaching effects.