On July 27, 2009, the U.S. Court of Appeals for the Ninth Circuit held that a corporation’s managers can be held personally liable under the Fair Labor Standards Act (“FLSA”) for wages that the corporation failed to pay to employees prior to the employer’s filing for bankruptcy. This opinion serves as a cautionary reminder of the risks managers potentially face when a corporation files for bankruptcy and has failed to pay its employees for all wages earned prior to the filing.
In Boucher v. Shaw, —- F. 3d —-, 2009 WL 2217517 (9th Cir. 2009), former employees of the Castaways Hotel, Casino and Bowling Center sued three senior managers for unpaid wages under Nevada state law as well as federal law. The managers moved to dismiss the claims based on, among other grounds, the fact that the hotel had filed for bankruptcy protection. The Ninth Circuit asked the Nevada Supreme Court to address the issue of whether, under state law, the managers could be personally liable as “employers” for the unpaid wages. The Nevada Supreme Court ruled that individual managers are not “employers” under state law. However, the Ninth Circuit ruled against the managers on the federal FLSA claims and allowed the employees’ claims to proceed.