Alaska Employment Law

Introduction

The Ninth Circuit recently issued an opinion imposing individual liability for wage and hour violations.  The case is Boucher v. Shaw, ___ F.3d ___, Slip Op. 9731 (July 27, 2009).  This summary briefly reviews the opinion and its significance. 

The Case

The Castaways casino in Nevada filed for Chapter 11 bankruptcy, which was subsequently converted to Chapter 7 when the casino closed its doors. Three former employees of the casino filed suit for wage and hour violations.  They sued the Chairman/CEO who had a 70 % ownership interest in the casino, the CFO, and another individual who was responsible for handling labor and employment matters and owned a 30 % share of the casino.  The district court concluded that the individuals were not “employers” under state and federal law.  Its ruling with respect to state law was confirmed by the Nevada Supreme Court which held, on certification from the 9th Circuit, that individuals were not employers for purposes of Nevada wage and hour law. 

However, with respect to federal law, the Ninth Circuit reversed.  The court observed that the FLSA definition of  “employer” was not governed by the common law test, but instead was expansively interpreted “in order to effectuate the FLSA’s broad remedial purposes.”  The court instructed that individuals could be classified as “employers” under the FLSA if they controlled “the nature and structure of the employment relationship” or exercised “economic control” (quoting Lambert v. Ackerly, 180 F.3d 997, 1012 (9th Cir. 1999) (en banc)).  Relevant factors included whether the individuals in question “had a significant ownership interest with operational control of significant aspects of the corporation’s day-to-day functions, the power to hire and fire employees, the power to determine salaries, and the responsibility to maintain employment records.”  Other relevant factors include the extent to which an individual supervised and controlled work schedules or other employment conditions, and determined the rate and method of payment.

The court concluded that all three casino managers/officers satisfied these requirements and could be held liable.  All three had control and custody of the plaintiffs, “their employment, and the place of employment.” The CEO and other officer controlled 100 % of the casino.  The CFO owned no stock but supervised the casino’s cash management.   Implied in the court’s analysis was an understanding that all three officers/managers were responsible for the decisions giving rise to the wage and hour violations; that is, they set the wages, established the pay policies, and administered pay practices.

Significance

This case is a useful reminder for small business employers, managers, and supervisors that there are circumstances under which individuals can be held liable for wage and hour violations.  Liability under such circumstances is not determined by reference to alter ego or piercing the corporate veil standards.  Instead, liability may be imposed where a sufficient degree of control and culpability exist.  “Culpability” seems to be the major factor.  Courts are more inclined to impose liability where individuals established the pay policies or were otherwise directly responsible for the wage and hour violations being litigated. Similar principles are observed under Alaska law.   There are a range of steps that individuals should consider in order to manage risk and protect themselves:

• Have your pay practices and exemptions periodically audited by counsel.
• Attend seminars to stay abreast of trends and developments.
• Adopt pay policies, including salary basis policies, in consultation with counsel.
• Revise policies in consultation with counsel.