Your President/CEO may have to pay your company’s wage and hour debts herself

Well, that certainly sucks. Even worse than the time I found out that Santa Claus MacGyver wasn’t a real person.

(My psychiatrist says that there’s a light at the end of the tunnel. I’m not so sure…)

But seriously, I thought that the purpose of a limited liability company was to insulate members from the debts of the company.

After the jump, see how that rule doesn’t necessarily apply when an LLC fails to pay minimum wage or overtime…

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In Schneider v. The IT Factor Productions, Ms. Schneider alleged that the defendant employer, a New Jersey limited liability company, failed to pay her both minimum wage and OT. However, not only did Ms. Schneider seek relief from the employer, she also sued its President and CEO.

Ms. Schneider argued that the LLC’s President and CEO maintained operational control over all of the company’s daily operations and business activities. She further alleged in her Complaint that the President and CEO was responsible for the day-to-day operations, including direct responsibility for the supervision of employees. Thus, she qualified as an “employer” under the Fair Labor Standards Act.

Under the FLSA, an “employer” may be on the hook for unpaid minimum wage and overtime, Here, in the Third Circuit, the FLSA definition of “employer” is quite broad. Indeed, it is so broad that it includes individuals acting in a supervisory capacity.

Generally, courts consider four non-exclusive factors when determining whether an individual is an employer:

the alleged employer’s authority to hire and fire the relevant employees;

the alleged employer’s authority to promulgate work rules and assignments and to set the employees’ conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment;

the alleged employer’s involvement in day-to-day employee supervision, including employee discipline; and

the alleged employer’s actual control of employee records, such as payroll, insurance, or taxes.

So, even though she may run a limited liability company, a corporate form designed to insulate its members from personal liability, a President/CEO have to pay minimum wage and OT out of her own pocket if she satisfies these factors. And, in this particular case, based on the facts alleged in the Complaint, the court denied the President/CEO’s motion to dismiss.

Thus, this case serves as a reminder of the exposure that not only a company, but certain individuals in a company may face when failing to pay out minimum wage or overtime.