Opinion ID: 198264
Heading Depth: 2
Heading Rank: 2

Heading: The Individual Plaintiffs' Status as Employers

Text: 29 In addition to determining that the corporate plaintiffs were the temporary workers' employers, within the meaning of the Act, the Board also concluded that two individual plaintiffs--Harold Woods and Marlene Woods 10 --were their employers as well and thus were personally liable for the alleged violations. As noted previously, more than one employer can be simultaneously responsible for FLSA obligations. A determination that the corporate plaintiffs are employers of the temporary workers does not preclude a determination that others are also employers for the purposes of the Act. See Falk, 414 U.S. at 195, 94 S.Ct. 427. 30 Describing themselves as mere functionaries who made office decisions which were also made by regular in-house employees in the ordinary course of business, Harold and Marlene contend that they were not employers because they had no ownership interest in the corporations and had no true operational control over any aspects of the business. The Secretary, however, cites § 3(d)'s broadly inclusive definition of an employer, see 29 U.S.C. § 203(d) (defining an employer as any person acting directly or indirectly in the interest of an employer in relation to an employee), and argues that Harold and Marlene fit this definition. The Secretary maintains that the significant factor is whether the individual exercised control over the work situation. In her view, Harold and Marlene exercised such control, and therefore should be deemed to be employers along with Baystate and hence liable personally for the civil monetary penalty imposed by the Secretary. 31 In this circuit, our analysis of the personal liability issue is informed by Donovan v. Agnew, 712 F.2d 1509 (1st Cir.1983), where we had to decide if appellants Agnew and Bradley, who together were president, treasurer, secretary, and members of the Board of Directors of Maxim Industries, Inc., were personally liable for minimum wage and overtime violations of the FLSA. 11 In Agnew, we began our analysis by recognizing that individuals ordinarily are shielded from personal liability when they do business in a corporate form, and that it should not lightly be inferred that Congress intended to disregard this shield in the context of the FLSA. See id. at 1513. In this vein, we cautioned that the Act's broadly inclusive definition of employer should not be afforded too much weight. [T]aken literally and applied in this context it would make any supervisory employee, even though without any control over the corporation's payroll, personally liable for the unpaid or deficient wages of other employees. Id. Similarly, we found it difficult to accept, as the Secretary argues and as some courts have apparently held, that Congress intended that any corporate officer or other employee with ultimate operational control over payroll matters be personally liable for the corporation's failure to pay minimum and overtime wages as required by the FLSA. Id. 32 At the same time, however, we also acknowledged that the language of the Act does not support the proposition that officers of a corporation can never be held personally liable for unpaid wages, and we recognized that Congress intended the FLSA's reach to transcend traditional common law parameters of the employer-employee relationship. See id. In reaching this conclusion, we observed that the Supreme Court has looked to the economic reality of a situation, rather than to technical common law concepts, to define the scope of the employer/employee relationship under the Act. See id. We further noted that Congress has never contradicted the Court's economic reality interpretation of the Act. See id. at 1514. Although such Supreme Court cases occurred in the distinguishable context of determining whether an individual should be excluded from the Act's coverage as an independent contractor, we noted that lower court decisions disregarding the corporate form to find individual corporate officers 'employers' within the meaning of the Act are not of such recent vintage that we can be sure that they have escaped Congress' attention. Id. 33 With these considerations in mind, we decided to apply an economic reality test to the Agnew personal liability issue. See id. Because the inquiry before us concerned personal liability, the well-established elements of the economic reality test commonly used to determine whether individuals should be excluded from the Act's coverage because of their status as independent contractors rather than employees, see, e.g., Superior Care, 840 F.2d at 1058-59 (citing cases), were not applicable. Instead, we emphasized elements drawn from the facts of the Agnew case that we deemed relevant to the personal liability determination. These elements included the significant ownership interest of the corporate officers; their operational control of significant aspects of the corporation's day to day functions, including compensation of employees 12 ; and the fact that they personally made decisions to continue operating the business despite financial adversity and the company's inability to fulfill its statutory obligations to its employees. See Agnew, 712 F.2d at 1511-14. Given the presence of these elements, we concluded that Agnew and Bradley were personally liable for the failure to pay minimum and overtime wages as required by the FLSA. See id. at 1514. 34 At bottom, Agnew 's economic reality analysis focused on the role played by the corporate officers in causing the corporation to undercompensate employees and to prefer the payment of other obligations and/or the retention of profits. In addition to direct evidence of such a role, other relevant indicia may exist as well--for example, an individual's operational control over significant aspects of the business and an individual's ownership interest in the business. See, e.g., id. at 1511-14. Such indicia, while not dispositive, are important to the analysis because they suggest that an individual controls a corporation's financial affairs and can cause the corporation to compensate (or not to compensate) employees in accordance with the FLSA. 35 Guided by Agnew 's application of the economic reality test in the context of the personal liability issue, we must determine whether the Board's factual findings, which are not disputed on appeal, support its legal conclusion that Harold and Marlene are employers, within the meaning of the Act. The Board set forth the following findings and conclusions: 36 Marlene Woods was the manager of All American Temps in Fitchburg responsible for overall supervision of the office. She hired and supervised the permanent employees, and was the contact person for client companies and workers seeking temporary employment. Marlene Woods set the rates charged to the client companies and purchased insurance for the workers. She gave directions to the workers about on-the-job conduct and exercised the authority on her own initiative to refuse to refer workers to jobs for misconduct, such as drug use or accidentally setting a work area on fire. We find that Marlene Woods exercised sufficient control over the work situation of the day workers to meet the definition of employer in the Act. 37 Harold Woods was President, Treasurer and a director of Alternative Staffing, Inc., President of Work-A-Day of Nashua, Treasurer of Work-A-Day of Fitchburg and of Work-A-Day of Lowell. His duties included opening bank accounts, making sales, renewing contacts with prior clients, taking orders for workers, transporting and paying the day workers, and general office duties. We find Harold Woods met the definition of employer under the Act. 38 (citations omitted). 39 The Board's findings support the conclusion that Marlene and Harold exercised some degree of supervisory control over the workers, and that they were responsible for overseeing various administrative aspects of the business--in other words, that they had the authority to manage certain aspects of the business's operations on a day-to-day basis. Thus, the Board's findings pertain primarily to Harold's and Marlene's routine supervisory and administrative responsibilities as non-owners of the business. The Board's decision, however, does not address other elements we identified in Agnew as important to the personal liability analysis--in particular, the personal responsibility for making decisions about the conduct of the business that contributed to the violations of the Act. The findings do not establish that either Harold or Marlene controlled Baystate's purse-strings or made corporate policy about Baystate's compensation practices. 13 40 The Board's findings reflect the literal application of the definition of an employer we warned against in Agnew--any person acting directly or indirectly in the interest of an employer in relation to an employee. See Agnew, 712 F.2d at 1513 (quoting 29 U.S.C. § 203(d)). If, as the Secretary argues, the significant factor in the personal liability determination is simply the exercise of control by a corporate officer or corporate employee over the work situation, almost any supervisory or managerial employee of a corporation could be held personally liable for the unpaid wages of other employees and the civil penalty related thereto. We adhere to the view expressed in Agnew that such an expansive application of the definition of an employer to a personal liability determination pursuant to the FLSA is untenable. 41 When an agency makes an error of law in its administrative proceedings, a reviewing court may remand the case to the agency so that the agency may take further action consistent with the correct legal standards. See South Prairie Constr. Co. v. Local No. 627, Int'l Union of Operating Eng'rs, 425 U.S. 800, 806, 96 S.Ct. 1842, 48 L.Ed.2d 382 (1976) (per curiam); Cissell Mfg. Co. v. United States Dep't of Labor, 101 F.3d 1132, 1136-37 (6th Cir.1996)(citing cases). In this case, the Board's personal liability determination relating to the corporate employees reflects a misperception of the critical components of the personal liability analysis identified in Donovan v. Agnew, 712 F.2d 1509, and elaborated herein. Because there is no basis for concluding that the Board would have reached the same result had it applied the correct legal standard, cf. NLRB v. Wyman-Gordon Co., 394 U.S. 759, 766 n. 6, 89 S.Ct. 1426, 22 L.Ed.2d 709 (1969), we remand to the district court with instructions that it, in turn, remand to the Secretary for reconsideration consistent herewith of the personal liability of Harold and Marlene Woods for any civil penalty imposed.