Compliance July 30, 2009

Court Finds Individual Managers Liable for Unpaid Wages

July 30, 2009 (PLANSPONSOR.com) - The 9th U.S. Circuit Court of Appeals has found that the individual managers of a now-bankrupt casino are liable under the Fair Labor Standards Act (FLSA) for the unpaid wages of dismissed workers.
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In reversing a dismissal of federal law claims by a lower court, the appellate court noted the FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” According to the opinion, in a previous case, the court 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.”

The appellate court reached a similar finding about the three defendants in the current case. Dan Shaw, former Chairman and Chief Executive Officer of the Castaways Hotel, Casino and Bowling Center, held 70% ownership; James Van Woerkom, former Chief Financial Officer, held 30% ownership; and the two, along with Michael Villamor were responsible for labor and employment matters at the Castaways.

According to the opinion, the defendants did not challenge their status as employers under the FLSA, but argued 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. However, the court said it couldn’t see how it made a difference one way or the other whether the Castaways was in Chapter 11 or Chapter 7 because the Castaways was not a defendant in the case, and the defendants are not debtors.

While reversing the lower court’s findings on the federal charges, the 9 th Circuit did affirm the dismissal of state law claims. The appellate court said neither the Nevada Supreme Court nor its previous opinions clarified the definition of employer under Nevada Revised Statutes, so it certified the question to the Nevada Supreme Court which held that individual managers could not be found liable as “employers” under state law.

The opinion in Boucher v. Shaw is here .

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