Ownership and Operational Control: Requirements for individual liability under FLSA

Ownership and Operational Control: Requirements for individual liability under FLSA

In the very recent Schneider v. Cornerstone Pints, Inc., No. 13 CV 4887, 2015 U.S. Dist. LEXIS 166993, Judge Manish S. Shah explained that the FLSA’s definition of “employer” is not well defined; although, not limitless, nor designed to create personal individual liability for individuals involved with business who do not have ownership stake or are passive investors.

Herein, wage violations were alleged occurring at a single restaurant operated by the corporate defendant and one individual defendant, Lewis. The court conducted a limited bench trial after the liability was admitted by these two defendants, in order to further determine whether two additional individual defendants, Lewis’ brothers in-law and investors in the business, could also be jointly liable as “employers”. The Court found out that the brothers weren’t joint employers based on the following observations and conclusions that:

• in acting within the interest of an employer, something more than mere supervision of an employee was required;
• the four commonly bundled economic realities factors be considered along with the relevant factors, although, these relevant factors aren’t dispositive or weightier than any other existing factors;
• although an important factor that defendant’s conduct must have caused in whole or in part the alleged violation; it is not self-sufficient – for example, if an employee deleted his co-worker’s hours from the company’s system, he isn’t the employer, even though he caused the violation, and other factors would have to be considered to hold him liable under the FLSA; and
• in continuation of the previous point, the employer must have actually exercised his authority; at least enough to have caused the violation in whole or in part. For this, exercising some arbitrary authority like signing of checks doesn’t suffice. In fact, the authority exercised must be related to the violation.

Since the brothers did not control company’s operations – be it the day-to-day or big picture and/or any work issues in particular, and were unaware of Lewis’ unlawful wage practices, they weren’t held to be “employers” under this test. The Court further held that they at most acted as sounding boards for Lewis and his ideas, and occasionally injected more money into the project.

As opposed to the FLSA, the Schneider decision clearly explains and defines the fundamentals of these issues. It is important for the owners, investors or executives having an impact on human resources and compensation decisions to be aware of this doctrine and take steps to minimize the liability.