CEO may be individually liable for wage violations

If your CEO or President is spending more time in the stock room than the Board room, they might end up having to pay wage claims from their own pocket. In most companies, the CEO or President typically will not get involved in the details of daily operations at a level that directly impacts employees. For example, daily decisions on arranging in-store displays, merchandizing, promotions of employees at the retail level, and dealing with routine customer complaints are usually handled further down the corporate ladder.

The federal Fair Labor Standards Act (FLSA) has a pretty broad definition of “employer” which may include executives and managers in addition to the company itself. However, in order for an individual to be held personally liable, he or she has to have “operational control.” Basically, this means exercising managerial control at the employee level regarding day-to-day operations, with personal responsibility for business decisions that contributed to violations of the FLSA. This is what happened in a recent court case which ruled that a grocery store chain’s CEO was individually liable for wage violations because he was intricately involved in the day-to-day details of running the stores (Irizarry v. Catsimatidis, 2nd Cir, July 2013).

Tips: For executives and managers who actively run the business, it’s wise to implement a corporate compliance plan to ensure compliance with overtime and minimum wage laws. People with decision-making authority in human resources and payroll should take the same precautions. If things go sour, the complaining employee can drag you into the lawsuit individually, in addition to suing the company. You don’t want to end up on the hook for wage violations, risking your home, bank account, or other assets. If you’re unsure whether you’re paying people correctly or properly designating them as exempt or nonexempt from overtime, contact your Vigilant staff representative for assistance. Also see our Legal Guide, “At a Glance: Overtime” (5180).