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Did you know that a non-owner wage-earning manager could have personal liability under the Fair Labor Standards Act for unpaid overtime and minimum wage violations?

A new 11th Circuit opinion sheds light on exactly this scenario.

Background on the Spears Case

William Spears typically worked nights as a front desk clerk for an Alabama hotel operated by a father-son duo, Rick Patel Sr and Rick “Sunny” Patel, Jr. He was paid $700-750 a month, plus onsite lodging valued at $630 a week.

Rick, the owner, was based in Florida and left most of the day-to-day management to Sunny, who also lived onsite and earned a wage. Sunny did not have an ownership interest in the hotels.

Spears sued both the Patels individually as well as the hotel legal business entity under the FLSA for being paid less than minimum wage and not receiving the appropriate overtime pay. A bench trial found that Spears was “not paid the legally required minimum wage or overtime” and that Rick and Sunny were employers individually liable under the FLSA.

The case is Spears v. Patel and was decided by the 11th Circuit on June 20, 2024.

Individual Liability under the FLSA

No one wants to be found to be liable for violations of the FLSA. Especially if they are not the owner of the company who gets to reap the profits of the company (while also bearing the risk of the losses). However, it’s entirely possible that a non-owner manager could be liable.

The FLSA defines “employer” quite broadly to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” And the courts look to all the facts and circumstances, not just technical factors, to determine whether an individual is an employer.

The obvious easy answers are going to be owners and officers. These positions are more likely to exercise operational control, making decisions over the employee’s hours worked and pay. But other managers, farther down the line, could be liable even without formal officer or owner authority.

If the manager is involved in day-to-day operation or have some direct responsibility for the supervision of employees, they could be individually liable as the employer. Courts will look to factors such as

  • Regular visits to company facilities
  • Power to set salaries
  • Involvement in the business operations
  • Control over the purse strings

In Spears, the Patels argued that if Sunny was found to be an employer, all middle managers would face individual liability. Overall, the Court seemed unconvinced with their argument, saying that the definition is broad and that managers can be employers — anyone that has “some direct responsibility for the supervision of the employee.”

In other words, expect your lawyer to give you a big “it depends” answer when you ask the question. But managers should be aware that they could be held individually liable for minimum wage and overtime violations.

See Also: DOL Increases Minimum Salary for Overtime Exemption

Did it Matter that the Manager was the Son of the Owner?

In this case, yes, it mattered that Sunny was related to the owner. This relationship meant that Sunny would “take the reins” when the father was not available.

But regardless of the familial relationship between the manager and the owner, Sunny was still directly involved in the company’s operations. And that made him, as a non-owner manager, liable for the FLSA violations for minimum wage and unpaid overtime.

The relationship was not dispositive of the outcome in the case, although it was a minor factor and considered in the Court’s analysis.

Why Individual Liability Matters in FLSA Cases

When minimum wage or overtime violations occur under FLSA cases, it will usually be the company that pays the back wages and associated penalties and interest. Those penalties can include liquidated damages in the amount of the back wages plus attorneys fees and costs.

However, widespread violations will often occur when a company is in financial distress. Allowing for corporate officers and managers to be personally liable helps to ensure that the employees will get paid. Remember, it’s not the employee’s fault that the company is in that distress.

Owners, officers, and yes, even managers need to be aware when they could face personal liability for their decisions. At the first signs of financial distress, your duties and responsibilities change – from profit goals to satisfying all the various stakeholders.

And this is another example of why it is important to watch that cash flow and make the necessary, and often, hard decisions on staffing. Don’t keep employees on staff if you are not able to pay them.

PS Make sure you also have the funds to pay the payroll taxes, not just the net pay owed to the employees. The IRS will also impose individual liability for unpaid payroll taxes.

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