Opinion ID: 422029
Heading Depth: 1
Heading Rank: 1

Heading: Employer Status

Text: 5 The FLSA requires that employers pay to covered employees a minimum hourly wage. 29 U.S.C. § 206. Employer is defined to include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee. 29 U.S.C. § 203(d). Taken literally this language would support liability against any agent or employee with supervisory power over other employees. It has, indeed, been interpreted expansively. In determining employer status, economic reality prevails over technical common law concepts of agency. Goldberg v. Whitaker, 366 U.S. 28, 33, 81 S.Ct. 933, 936, 6 L.Ed.2d 100 (1961). There may be several simultaneous employers. Falk v. Brennan, 414 U.S. 190, 195, 94 S.Ct. 427, 431, 38 L.Ed.2d 406 (1973); Hodgson v. Arnheim & Neely, Inc., 444 F.2d 609, 611-12 (3d Cir.1971). 6 The overwhelming weight of authority is that a corporate officer with operational control of a corporation's covered enterprise is an employer along with the corporation, jointly and severally liable under the FLSA for unpaid wages. See, e.g., Donovan v. Sabine Irrigation Co., Inc., 695 F.2d 190, 194-95 (5th Cir.1983), cert. denied, --- U.S. ----, 103 S.Ct. 3537, 76 L.Ed.2d ---- (1983); Marchak v. Observer Publications, Inc., 493 F.Supp. 278, 282 (D.R.I.1980); Brennan v. Whatley, 432 F.Supp. 465, 469 (E.D.Tex.1977); Hodgson v. Royal Crown Bottling Co., 324 F.Supp. 342, 347 (D.Miss.1970), aff'd, 465 F.2d 473 (5th Cir.1972); Schultz v. Chalk-Fitzgerald Construction Co., 309 F.Supp. 1255 (D.Mass.1970); cf. Chambers Construction Co. v. Mitchell, 233 F.2d 717, 724-25 (8th Cir.1956) (corporate officer within definition of employer; therefore trial judge did not abuse discretion in making injunction run against him personally). Personal liability has been found even against a corporate officer who lacks an ownership interest in the corporation, Sabine Irrigation Co., Inc., supra, 695 F.2d at 194-95; or who has minimal ownership interest, Usery v. Weiner Bros., Inc., 70 F.R.D. 615, 617 (D.Conn.1976). 7 The district court here found that during the relevant period Maxim Industries, Inc. was wholly owned by Maxim, Inc., which in turn was owned by appellants Agnew and Bradley, who together were President, Treasurer, Secretary and sole members of the Board of Directors of Maxim Industries, Inc. 2 It found that both appellants maintained offices at Maxim Industries' Middleborough plant and that both were actively engaged in the management, supervision and oversight of Maxim Industries' affairs, including employee compensation and benefits. 8 The court found specifically that appellant Agnew was personally responsible for allowing the company's worker's compensation insurance to lapse in derogation of its legal responsibility and personally took responsibility for making banking arrangements when informed in late 1980 that Maxim's payroll account could not cover its weekly payroll; and that appellant Bradley, during the latter part of 1980, personally supervised the cash flow of the company on a day to day basis, was personally involved in decisions about layoffs and employee overtime hours, and met frequently with the union president regarding the company's failure to make payments to the employees' pension plan, health insurance plan, and workers' compensation program. Specifically as regards the company's failure to pay wages during the last days of the company's operations, the court found that Agnew and Bradley as principals of the firm knowingly undertook a calculated risk to keep the plant open, in spite of layoff recommendations from the bank, the union, and their own managers, and in spite of the company's inability fully to fulfill its statutory obligations to its employees. 9 Because the court conducted a full evidentiary hearing on the issue of appellants' employer status and entered findings of fact, we will not set aside those findings unless they are clearly erroneous. Rule 52(a) Fed.R.Civ.P. They are not. The question before us, then, is whether corporate officers with a substantial ownership interest in the corporation who are directly involved in decisions affecting employee compensation may be held personally liable for the corporation's failure to pay minimum and overtime wages as required under the FLSA. 10 Appellants contend that Congress did not intend to impose personal liability upon principals of a bona fide corporation except in those extraordinary circumstances--the corporation has been used as a personal conduit or there has been inadequate capitalization or fraud--that warrant piercing the corporate veil at common law. Acknowledging the weight of precedent to the contrary, appellants recommend to us the reasoning of two older district court decisions--Mitchell v. Jaco Pants, Inc., 14 W.H. Cases 245 (M.D.Ga.1959) and Goldberg v. Pure Ice Co., 45 CCH Labor Cases p 31,296 (E.D.Ark.1962). Both courts distinguished between holding a corporate officer or stockholder personally liable and making him personally subject to an injunction. As the court reasoned in Pure Ice Co., 11 [I]t is one thing to say that an individual officer or stockholder may be subjected to an injunction; it is quite another thing to say that merely because an individual connected with a corporation may fall within the statutory definition of an 'employer' such individual becomes liable personally for wages due employees under the Act.... Such personal liability should be imposed only where in ordinary civil litigation the corporate entity would be ignored and personal liability for corporate debts imposed on the individual involved. 12 The individual defendant in the Pure Ice case was president of the corporation and owned 75 per cent of its stock. On appeal, the Eighth Circuit affirmed but did not adopt the district court's reasoning, relying instead on facts indicating that the defendant was not directly involved in the operation of the company. The court indicated that it might reach a different result if there were a combination of stock ownership, management, direction and the right to hire and fire employees. Wirtz v. Pure Ice Co., 322 F.2d 259, 263 (8th Cir.1963). 13 Appellants also argue by way of analogy to the National Labor Relations Act (the Act), under which corporate officers have not been held personally accountable for the corporation's backpay liability absent circumstances equivalent to those that would justify piercing the corporate veil at common law. 3 See Concrete Mfg. Co., 262 NLRB No. 92 (1982); Chef Nathan Sez Eat Here, Inc., 201 NLRB 343 (1973); Riley Aeronautics Corp., 178 NLRB No. 495 (1969). Appellants urge that reference to NLRA precedent is apt in interpreting the scope of the term employer under the FLSA because when enacted in 1935, three years before the enactment of the FLSA, the NLRA defined employer as does the FLSA. They also point out that the legislative history of the Taft-Hartley amendments to the NLRA, which amended the NLRA's definition of employer, indicates that Congress' intent in the original definition was to make employers liable for the acts of their agents, not vice versa. 14 The NLRA now defines employer to include[ ] any person acting as an agent of an employer, directly or indirectly.... 29 U.S.C. § 152(2). The legislative history of the Taft-Hartley amendments indicates that Congress, in amending the definition of employer, was responding to the Labor Board's expansive interpretation of the original definition, under which employers had been held responsible for the acts of others beyond common law principles of agency. 15 Under existing law 'employer' is defined to include any person acting in the interest of an employer. The House bill changed this so as to include as an employer only persons acting as agents of an employer. This was done for the reason that the Board has on numerous occasions held an employer responsible for the acts of subordinate employees and others although not acting within the scope of any authority from the employer, real or apparent. H.R. No. 510, 80th Cong., 1st Sess. (1947), reprinted in 1947 U.S.Code Cong. Service 1135, 1137. 16 Appellants' analysis is not without merit, and we follow it to a certain point. We agree that it should not lightly be inferred that Congress intended to disregard in this context the shield from personal liability which is one of the major purposes of doing business in a corporate form. It is 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. 17 Nor do we think too much weight can be put on the Act's broadly inclusive definition of employer. Taken literally and applied in this context it would make any supervisory employee, even those without any control over the corporation's payroll, personally liable for the unpaid or deficient wages of other employees. It makes more sense, as appellants argue, to interpret that language as intended to prevent employers from shielding themselves from responsibility for the acts of their agents. 18 But neither does the language of the Act in defining employer support appellants' contention that officers in a bona fide corporation can never be held personally liable for unpaid wages. Looking beyond that single section, it is clear that Congress did not intend to incorporate the common law parameters of the employer-employee relationship. Unlike the NLRA, the FLSA defines employee to mean[ ] any individual employed by an employer. 29 U.S.C. § 203(e)(1); the term was thus given what Senator Black described on the floor of the Senate as  'the broadest definition that has ever been included in any one act.' 81 Cong.Rec. 7657. United States v. Rosenwasser, 323 U.S. 360, 363 n. 3, 65 S.Ct. 295, 296 n. 3, 89 L.Ed. 301 (1945). 19 To gauge the scope of the employer-employee relationship in particular contexts, the Supreme Court has looked not only to the definitions of employer and employee but to the entire remedial context of the Act. 20 [T]here is in the Fair Labor Standards Act no definition that solves problems as to the limits of the employer-employee relationship under the Act.... The definition of 'employ' is broad.... 'This Act contains its own definitions, comprehensive enough to require its application to many persons and working relationships which, prior to this Act, were not deemed to fall within the employer-employee category.'  Rutherford Food Corp. v. McComb, 331 U.S. 722, 728-29 [67 S.Ct. 1473, 1475-76, 91 L.Ed. 1772] (1947) (quoting Walling v. Portland Terminal Co., 330 U.S. 148, 152 [67 S.Ct. 639, 641, 91 L.Ed. 809] (1947)). 21 The Court has not looked to technical common law concepts to define the scope of the employer-employee relationship under the Act, but rather to economic reality. Goldberg v. Whitaker House, supra, 366 U.S. at 33, 81 S.Ct. at 936; Rutherford Food Corp., supra, 331 U.S. at 729, 67 S.Ct. at 1476. 22 Significantly, the Supreme Court initially applied the same broad economic reality analysis to determine the scope of the employment relationship under the NLRA, NLRB v. Hearst Publications, 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170 (1944) ([T]he broad language of the Act's definitions, which in terms reject conventional limitations on such conceptions as 'employee', 'employer', and 'labor dispute', leaves no doubt that its applicability is to be determined broadly, in doubtful situations, by underlying economic facts rather than technically and exclusively by previously established legal classifications.), and under the Social Security Act, Bartels v. Birmingham, 332 U.S. 126, 130, 67 S.Ct. 1547, 1549, 91 L.Ed. 1947 (1947); United States v. Silk, 331 U.S. 704, 713, 67 S.Ct. 1463, 1468, 91 L.Ed. 1757 (1947). But in the case of those two Acts, Congress has expressly overruled the Court's expansive interpretation. The Taft-Hartley Act amended the NLRA's definition of employee to exclude any individual ... having the status of an independent contractor, 29 U.S.C. § 152(3), specifically overruling NLRB v. Hearst Publications, Inc., supra. H.R. No. 510, supra, at 1138. Similarly, Congress acted in 1948 to correct any suggestion in the Silk and Bartels cases that the scope of the employer-employee relationship should be construed as broader than that at common law. S.Rep. No. 1255, 80th Cong., 2d Sess. (1948), reprinted in 1948 U.S.Code Cong. Service 1752, 1753. 23 By contrast, despite having revisited the FLSA in 1949 (63 Stat. 910), 1956 (70 Stat. 1118), 1961 (75 Stat. 65), 1963 (77 Stat. 56), 1966 (80 Stat. 830), 1974 (88 Stat. 55), and 1977 (91 Stat. 1245), Congress has never contradicted the Court's broad, economic reality interpretation of the Act. It is true that Supreme Court precedent applying an economic reality rather than a common law analysis of the employer-employee relationship has been in the context of determining whether an individual or group of individuals should be excluded from the Act's coverage of employees as independent contractors. But 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. 24 Taking an economic reality approach to the facts of this case, we find that the district court did not err in holding appellants personally liable for the unpaid wages of their 99 hourly employees. Our holding is narrow. We review the liability of corporate officers with a significant ownership interest who had operational control of significant aspects of the corporation's day to day functions, including compensation of employees, and who personally made decisions to continue operations despite financial adversity during the period of nonpayment. Cf. Wirtz v. Pure Ice Co., supra, 322 F.2d at 263. Under these circumstances, we agree with the district court's holding that appellants were employers within the meaning of the Act chargeable with personal liability for failure to pay minimum and overtime wages as required by the FLSA.