From the North Carolina law firm of Ward and Smith, P.A. comes this important reminder: if you’re a corporate manager, officer or shareholder, don’t count on the “corporate veil” to protect you from personal liability if the company fails to pay employees properly.
Seriously. A lot of people seem to think as long as it’s “the corporation” that errs, the individuals who make up the corporation are protected.
However, as many supervisors, managers, corporate officers and directors have found to their chagrin, that belief is often dead wrong.
One Worker, Multiple Employers
You may have heard of the concept of “joint employers.” Usually we hear about this in the context of someone who works for a temp agency, where both the agency and the client company are seen to be the employer of the worker, and both share liability if the employee isn’t paid properly under the law.
Well, what many people may not know is that concept can also apply in a corporate setting. A worker can be determined to be “jointly employed” by both the corporation and by their individual supervisor, their department head, the division VP and/or the company president (among others).
This is especially true in the case of small, closely-held corporations. Often, individuals starting their own business will incorporate, falsely believing this will totally protect their personal assets. Unfortunately, when you basically are the corporation, it easier than you might think for your employees to pierce the corporate veil… especially when you’re the one doing all the hiring and firing, setting everyone’s pay rates and signing all the paychecks.
The problem is, there’s no hard-and-fast rule you can rely on to determine whether you might be considered a joint employer of the people who work under you. It’s a matter of degree. The more control you have over the employee’s pay (for instance, determining eligibility for, and the amount of, raises and bonuses), work schedule, terms of employment and so forth, the more likely it is you’ll be found to be a joint employer. And, potentially, personally liable for a share of any back wages, penalties and fines assessed.
For instance, recently in the case of Irizarry v. Catsimatidis, the court ruled Gristedes Foods CEO John Catsimatidis was individually responsible for paying a $3.5 million settlement representing unpaid overtime. Catsimatidis argued he only made general corporate decisions and was not involved in the company’s day to day operations. This argument was rejected by the court, which noted he handled the banking, real estate and financial business of the company, he took a hand in product merchandising, he fielded consumer complaints, he hired and fired managerial employees and he regularly visited the stores to evaluate their operations. In the court’s eyes, he exercised “operational control” and as a result was an “employer” under the FLSA. And therefore, when the company defaulted on settlement payments, he could be held personally liable for paying the balance.
So, how can you avoid this potential personal liability?
Well, since your degree of personal liability in a wage and hour lawsuit is very much a matter of the judge’s interpretation of the specific details of the case, it’s hard to predict in advance what the outcome might be.
In other words, the best way to avoid personal liability is simply to make sure your employees are paid correctly and treated fairly, according to the terms of current employment law, federal, state and local. (Easier said than done, I know! The laws are complex and can be confusing.)
So there are two things I recommend you do.
- Consult with your employment law attorney. Have her go over your employee handbook, review your policies and procedures and perform a wage and hour audit to ensure your practices are in line with the law.
- Track employee work time accurately, and pay proper overtime to all eligible employees. Wage and hour lawsuits are rampant. They’re easy to file, lucrative for the plaintiff’s attorneys and expensive to defend. Your best line of defense is to make absolutely sure you’re paying your people properly as best you can. Again, your employment law attorney can counsel you on any “gray areas” and help you determine your level of risk, and the possible consequences of getting it wrong.
If you’re looking for an easy, professional, accurate and affordable way to track employee time, I suggest you check out timeQplus FaceVerify. This hands-free facial-recognition system totally eliminates buddy punching, without employees having to touch the clock at all. (Fewer germs transmitted, come cold and flu season!) We use it here at our offices every day.
Photo Credit: SalFalko