Managers who had “control and custody of the [employees], their employment, and their place of employment” at the company, can be held individually liable for unpaid wages under the Fair Labor Standards Act despite the bankruptcy of the business, the Ninth Circuit rules.

The company had initially filed for Chapter 11 bankruptcy protection, and the employees were discharged six months later. After their termination, the Chapter 11 petition was converted to a Chapter 7 liquidation, and the company ceased operations. The terminated employees filed suit seeking to recover unpaid wages. The managers named in the suit included the President and CEO who had a 70 percent ownership in the company, the CFO who had responsibility for supervision and oversight of the company’s cash management, and a third manager who “was responsible for handling labor and employment matters” at the company.

The Ninth Circuit analyzes whether individual managers could be considered “employers” within the meaning of the FLSA, and holds that “[w]here an individual exercises ‘control over the nature and structure of the employment relationship,’ or ‘economic control’ over the relationship, that individual is an employer within the meaning of the Act, and is subject to liability.” The Court observes that it had “never addressed the question whether a company’s bankruptcy affects the liability of its individual managers under the FLSA” but that its “case law regarding guarantors, sureties and other non-debtor parties who are liable for the debts of the debtor leaves no doubt about the answer” that the company’s bankruptcy in this case “has no effect on the claims against the individual managers at issue here.” Boucher v. Shaw