Opinion ID: 1449696
Heading Depth: 2
Heading Rank: 2

Heading: Whether Managers Can Be Employers Under the FLSA

Text: The only remaining claim seeks unpaid wages under the FLSA. Ballard is the only named plaintiff who has sued under the FLSA. The FLSA provides that [e]very employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, a minimum wage. 29 U.S.C. § 206(a). Any employer who violates the provisions of section 206 or section 207 of this title shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. 29 U.S.C. § 216(b). Ballard alleges that the Castaways managers are individually liable for unpaid wages as employers under the FLSA. The FLSA defines employer as any person acting directly or indirectly in the interest of an employer in relation to an employee .... 29 U.S.C. § 203(d). We have held that the definition of employer under the FLSA is not limited by the common law concept of employer, but `is to be given an expansive interpretation in order to effectuate the FLSA's broad remedial purposes.' Lambert v. Ackerley, 180 F.3d 997, 1011-12 (9th Cir. 1999) (en banc) (quoting Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1469 (9th Cir.1983)). See also Real v. Driscoll Strawberry Assocs., 603 F.2d 748, 754 (9th Cir.1979). The determination of whether an employer-employee relationship exists does not depend on isolated factors but rather upon the circumstances of the whole activity. Rutherford Food Corp. v. McComb, 331 U.S. 722, 730, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947). The touchstone is the economic reality of the relationship. Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961). Where an individual exercises control over the nature and structure of the employment relationship, or economic control over the relationship, that individual is an employer within the meaning of the Act, and is subject to liability. Lambert, 180 F.3d at 1012 (internal quotation marks and citations omitted). In Lambert, we upheld a finding of liability against a chief operating officer and a chief executive officer where the officers 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] determin[e][ ] salaries;[and the responsibility to] maintain [ ] employment records.' Lambert, 180 F.3d at 1001-02, 1012 (quoting the district court's jury instruction). The evidence, moreover, strongly supports the jury's determination that both Ackerleys exercised economic and operational control over the employment relationship with the sales agents, and were accordingly employers within the meaning of the Act. Id. at 1012. See also Chao v. Hotel Oasis, Inc., 493 F.3d 26, 34 (1st Cir.2007) (holding corporation's president personally liable where he had ultimate control over business's day-to-day operations and was the corporate officer principally in charge of directing employment practices); United States Dep't of Labor v. Cole Enters., Inc., 62 F.3d 775, 778-79 (6th Cir.1995) (president and 50 percent owner of corporation was employer within FLSA where he ran business, issued checks, maintained records, determined employment practices and was involved in scheduling hours, payroll and hiring employees). In the case at bar, Ballard has alleged that Defendant Villamor was responsible for handling labor and employment matters at the Castaways; Defendant Shaw was chairman and chief executive officer of the Castaways; and Defendant Van Woerkom was the Castaways' chief financial officer and had responsibility for supervision and oversight of the Castaways' cash management. The plaintiff also alleges that Shaw held a 70 percent ownership interest in the Castaways, Villemor held a 30 percent ownership interest and all three defendants had control and custody of the plaintiff class, their employment, and their place of employment. ( See Complaint ¶¶ 9-11.) Accepting these allegations of material fact as true, Ballard's claim withstands a motion to dismiss. See Simon, 546 F.3d at 664. The defendants do not challenge their status as employers under the FLSA. Rather, they argue that any duty they had to pay wages to Castaways' employees ended with the conversion of the Castaways' Chapter 11 bankruptcy proceeding into a Chapter 7 liquidation. The defendants cite no authority for this proposition, but state merely that [a]ny action under the FLSA is properly directed to the Chapter 7 Trustee and not Shaw, Villamor or Van Woerkom. (Appellees' Br. at 14.) Ballard responds that the case was not converted to a Chapter 7 proceeding until February 10, 2004, at least eleven days after she was fired, so that even if the duty to pay wages ceased upon the conversion of the case, the managers were liable up until that point. In supplemental briefing ordered by the court, the defendants do not dispute that the bankruptcy was converted to a Chapter 7 on February 10. Yet they assert that the Castaways had ceased its operations altogether at the time that Ballard's wage claim accrued, which appears to mean that although Ballard is owed wages for the final pay period prior to when the Castaways ceased operating on January 29, her paycheck was not due to be issued to her until afterwards. Ballard argues to the contrary, citing Nev. Rev.Stat. § 608.020, for the proposition that wages and compensation earned and unpaid at the time of discharge are to be paid immediately. We agree. Moreover, the defendants' subsequent argument that Ballard's FLSA claim should fail because her wage claim has already been satisfied in the bankruptcy proceeding raises a question of fact not properly resolved on a motion to dismiss. As a more general matter, we cannot see how it makes a difference one way or the other whether the Castaways was in Chapter 11 or Chapter 7. The Castaways is not a defendant, and the defendants are not debtors. The defendants perhaps assume that the automatic stay or other injunctive power of the bankruptcy court has some effect on the plaintiff's claim, but they have not shown how that would be. Section 362 of the Bankruptcy Code embodies the automatic stay, which immediately applies when a debtor files a bankruptcy petition and is designed to preclude a variety of post-petition actionsboth judicial and non-judicialagainst the debtor or affecting property of the estate. See 11 U.S.C. § 362(a). The automatic stay is fundamental to bankruptcy law. It ensures that claims against the debtor will be brought in one place, the bankruptcy court. The stay protects the debtor by giving it room to breathe and, thereby, hopefully to reorganize. The stay also protects creditors as a group from any one creditor who might otherwise seek to obtain payment on its claims to the others' detriment. See, e.g., Chugach Forest Prods., Inc. v. Northern Stevedoring & Handling Corp., 23 F.3d 241, 243 (9th Cir.1994) (quoting Hillis Motors, Inc. v. Hawaii Auto. Dealers' Ass'n, 997 F.2d 581, 585 (9th Cir.1993)). As a general rule, the automatic stay protects only the debtor, property of the debtor or property of the estate. See 11 U.S.C. §§ 362(a); 541(a) (defining property of the estate); Advanced Ribbons and Office Prods., Inc. v. U.S. Interstate Distrib., Inc., 125 B.R. 259, 263 (9th Cir. BAP1991) (citation omitted); see also Chugach, 23 F.3d at 246. The stay does not protect non-debtor parties or their property. Thus, section 362(a) does not stay actions against guarantors, sureties, corporate affiliates, or other non-debtor parties liable on the debts of the debtor. Chugach, 23 F.3d at 246 (citations omitted). We have refused to extend the automatic stay to enjoin claims against a contractor-debtor's surety, even though a surety bond guarantees the contractor-debtor's performance. See In re Lockard, 884 F.2d 1171, 1178-79 (9th Cir.1989). In Lockard, we reasoned that extending the stay was inappropriate because the surety, not the contractor-debtor, puts its property directly at risk of liability to creditors in the event of nonpayment by the contractor-debtor, and therefore a surety bond is not property of the bankruptcy estate. Id. at 1178. We found that this was the case even though allowing a claim against the surety would trigger the surety's right to recourse against the debtor. Id. Similarly, the automatic stay does not protect the property of parties such as officers of the debtor, even if the property in question is stock in the debtor corporation, and even if that stock has been pledged as security for the debtor's liability. Advanced Ribbons, 125 B.R. at 263. We have never addressed the question whether a company's bankruptcy affects the liability of its individual managers under the FLSA. But our case law regarding guarantors, sureties and other non-debtor parties who are liable for the debts of the debtor leaves no doubt about the answer: the Castaways bankruptcy has no effect on the claims against the individual managers at issue here. This is, in fact, an easier case than our precedent cited supra. Here, the plaintiff's claim does not seek to reach property of the managers that has been pledged to secure the Castaways' debt, or that would otherwise impact property of the estate. The individual managers generally are not liable for debts of the debtor, and even if they were, the plaintiff's statutory claim against the individual managers is unrelated to any of the Castaways' debts. Nor does the plaintiff seek damages based on an insurance policy held by the debtor. Cf. A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 998-1004 (4th Cir.1986). The plaintiff's claim is not being used as an alternative route to recoup property of the estate, and therefore cannot be said to be related to the bankruptcy proceeding, such that it would be swept into the bankruptcy court's jurisdiction under 28 U.S.C. § 1334(b). See Celotex v. Edwards, 514 U.S. 300, 307-08, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). Neither party has alleged that the estate would be diminished by any judgment in favor of the plaintiff, nor is there any indication in the record that the Castaways would be required to indemnify the individual managers for legal expenses or any judgment against them in this case. Cf. In re Minoco Group of Cos., 799 F.2d 517, 518 (9th Cir.1986) (affirming bankruptcy court's finding that insurance policy cancellation was automatically stayed because of its impact on debtor's obligation to indemnify officers and directors). However, if the liability of the non-debtor party were to affect the property of the bankruptcy estate, such as by a requirement that the debtor indemnify the non-debtor or by payment of the liability from a director's and officer's insurance policy, it may be necessary for the plaintiff in such a case to proceed against the nondebtor party through bankruptcy proceedings. See id.; A.H. Robins Co., 788 F.2d at 1007-08. [3] In this case, the parties have not raised any claims that this suit would affect the bankruptcy estate, so we need not reach this question. To the contrary, the managers are independently liable under the FLSA, and the automatic stay has no effect on that liability. The defendants in their supplementary briefing repeatedly assert that they were unable to find any authority in support of this proposition. We have found at least two cases holding that individual managers can be held liable under the FLSA even after the corporation has filed for bankruptcy. See Donovan v. Agnew, 712 F.2d 1509, 1511, 1514 (1st Cir. 1983) (finding managers of bankrupt corporation individually liable under FLSA and noting, 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.); Chung v. New Silver Palace, 246 F.Supp.2d 220, 226 (S.D.N.Y.2002) (The automatic stay ... affects only [the debtor]; it does not apply to plaintiff's [FLSA] claims against the [debtor]'s non-debtor co-defendants.).