Court Explains Personal Liability Exposure Under the FLSA

​Corporate officers and supervisors may be personally liable for wage and hour violations under the Fair Labor Standards Act (FLSA) if they have significant ownership interests, exercise day-to-day control of operations, and are involved in the supervision and payment of employees, according to a ruling by a federal district court.

The plaintiffs in the case worked for Air Check Inc. at the Chicago O'Hare International Airport as lavatory service and ramp workers. Lavatory service workers remove waste from airplanes, flush out the plane lavatories and clean the front windshields of airplanes. Ramp workers pick up garbage, clean conveyors, sweep and power wash the planes, cut the grass at the airfield, and remove snow in the winter.

Air Check uses rounding-time practices for its lavatory service and ramp workers. If a lavatory service or ramp worker is less than eight minutes late to a shift, the worker's time is rounded down to the shift start time and no pay is docked. However, if a lavatory service or ramp worker is more than eight minutes late to a shift, the worker's time is rounded up to the next quarter hour, resulting in a dock of 15 minutes of pay.

Air Check also has a practice of automatically deducting a 30-minute meal period from an employee's timecard, unless the employee advises his or her supervisor of a missed lunch break and the supervisor makes a notation on the timecard stating "no lunch."

The plaintiffs alleged that their time was always rounded up and that they were docked pay even if they were one minute late for a shift. The plaintiffs also maintained that, on a routine basis, they saw their lunch breaks reduced to 20 minutes or they were asked to work through lunch due to business needs; however, Air Check always deducted 30 minutes from their paid time for lunch. The plaintiffs further said they were required to perform off-the-clock work before or after their scheduled shifts.

They sued Air Check, as well as its CEO, its president and the president of Scrub Inc., an affiliate of Air Check, claiming that Air Check's rounding practices, automatic lunch period deductions and knowledge of off-the-clock work violated the FLSA by depriving the plaintiffs of overtime pay. The three individual defendants moved for summary judgment, arguing that they were not "employers" subject to liability under the FLSA.

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The district court ruled that Air Check's CEO and the president of Scrub Inc. were not "employers" subject to liability for the alleged FLSA violations, but that Air Check's president might be found liable due to his leadership position and operational control of Air Check.

Under the FLSA, the definition of "employer" includes "any person acting directly or indirectly in the interest of an employer in relation to an employee."

The district court concluded that the president of Scrub Inc. was not personally liable because Scrub was not a party to the lawsuit and there was no evidence that Scrub's president had any connection to Air Check either as an owner or executive. The court also concluded that the CEO of Air Check was not personally liable because, although he was the CEO and a minority owner of Air Check, there was no evidence that he was involved in the day-to-day functions and management of the lavatory service and ramp workers. For example, he did not have the ability to hire and fire, to supervise or control work schedules and conditions of employment, or to determine the rate and method of payment of wages.

On the other hand, the court found that Air Check's president might be held personally liable for the alleged FLSA violations because he:

• Wrote the handbook that set forth the expectation that workers arrive early to gather equipment and perform additional cleaning work at the end of a scheduled shift.
  
• Had the authority to hire and fire employees.
  
• Was on the ground at the airport nearly every day.
  
• Knew that Air Check's lavatory and ramp workers had their time subject to the rounding practices.
  

Therefore, the district court denied the summary judgment motion by Air Check's president.

Foday v. Air Check Inc., N.D. Ill., No. 15-cv-10205 (Aug. 20, 2018).

Professional Pointer: To be held personally liable under the FLSA, an individual must possess and exercise specific duties, such as hiring and firing employees, supervising or controlling work schedules and conditions of employment, and/or making pay decisions. There is an important distinction between exercised authority and unexercised authority, and the mere fact that an individual has an ownership interest or is in a position of authority is not enough to make the individual personally liable.

Jennifer L. Gokenbach is an attorney with Gokenbach Law LLC, the Worklaw® Network member firm in Denver.