Are You Personally Liable?

Although individuals are normally shielded from liability when they act on behalf of a corporation, there are circumstances under which a corporation does not protect them.  Personal liability arises in the employment context related to the Fair Labor Standards Act (FLSA), the Equal Pay Act, the Family and Medical Leave Act (FMLA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Employee Retirement Income Security Act (ERISA), and the Immigration Reform and Control Act.

Courts have held individuals personally liable when they have had authority to manage certain aspects of a business’s operations on a day-to-day basis.  The facts can vary, but the following are a few examples.  In Baystate Alternative Staffing, the owners and managers were held personally liable for the company’s multiple violations of the FLSA due to there misclassification of workers as independent contractors instead of employees.  In Chao v. Hotel Oasis Inc., the company’s president was found personally liable for wage-hour violations under the FLSA.  In Alman v. Servall Manufacturing Co., the company’s president was held personally liable for an ERISA violation for delinquent contributions to a benefits plan.

Part of what drives this trend is the broadening and liberal construction by courts of employment laws.  Another driving force is the added leverage gained by a plaintiff’s attorney suing a company manager personally.  Because of the time, cost of litigation, and the threat of personal liability imposed on an individual named as a defendant, including an owner, officer or manager of a company as a defendant can lead to quicker and more lucrative settlements for plaintiffs.

What can you do to minimize your exposure?  First, you must understand applicable laws and regulations.  Employment laws can be very complex and multi-layered (i.e. federal, state and local laws may all impact the situation).  Educate yourself regarding the laws and ask an attorney for advice when you are not sure what is required.  Second, maintain up-to-date company policies, and follow those policies.  Third, before you make a decision, make sure you are able to explain it and why it does not violate any law or regulation.  Then execute and document your decision.  Hasty decisions can cause you unwanted and unexpected problems, especially when there is an employee negatively impacted by the hasty decision.

While the above recommendations will not make you bulletproof in today’s litigious society, they can help minimize you as a target and increase the likelihood that you will not be found personally liable.