Managers Individually Liable for Unpaid Wages Despite Employer's Bankruptcy

A recent case should strike fear into the hearts of all upper-level managers and human resources professionals:  in Boucher v. Shaw, the Ninth Circuit ruled that individual managers were liable for their subordinates' unpaid wages, even though the employer company filed for bankruptcy. 

In Boucher, a group of former casino employees sued the CEO, CFO and the labor relations manager of their former employer, the Castaways Hotel, Casino and Bowling Center.  The three managers moved to dismiss, arguing that they were not "employers" that could be liable for unpaid wages under the Fair Labor Standards Act (FLSA), and that they should receive protections from the Castaways' bankruptcy filing. 

The Ninth Circuit noted that under the FLSA, the term "employer" is to be construed broadly to include individuals who have “control over the nature and structure of the employment relationship,” or “economic control” over that relationship.  It concluded that the three executives, two of whom were also alleged to be co-owners of the casino, fit that definition of "employer."  The court also found that because the three executives were not parties to the bankruptcy proceeding, they were not entitled to any bankruptcy protections. 

As the Stoel Rives World of Employment reported earlier this month, the Washington Supreme Court reached a similar ruling based on almost identical facts in Morgan v. Kingen.  These cases should serve as a reminder to managers everywhere:  if your business is failing, you may want to prioritize paying your employees' wages over everything else.  Failure to do so may lead to personal liability. 

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