The definition of an “employer” under the FLSA is, like a number of FLSA provisions, not well defined, as set forth in a long and thoughtful opinion from Judge Manish S. Shah of the Northern District of Illinois. Schneider v. Cornerstone Pints, Inc., 2015 U.S. Dist. LEXIS 166993 (N.D. Ill. Dec. 1, 2015). However, it is not limitless, nor is it designed to create personal individual liability for individuals involved with businesses who have no ownership stake or are passive investors.

In Schneider, the allegations concerned wage violations occurring at a single restaurant operated by the corporate defendant and one individual defendant, Lewis. After these two defendants admitted liability,t he court conducted a limited bench trial to determine whether two additional individual defendants, Lewis’ brothers in-law and investors in the business, were jointly liable as “employers.”  In finding they were not joint employers, the Court made the following observations and conclusions:

  • “First, although a person must act in the interests of an employer in relation to an employee, more than supervision of an employee is required.
  • Second, all relevant facts should be considered, including the four commonly bundled [economic realities factors]. These four factors, however, are neither dispositive nor necessarily weightier than any others.
  • Third, to be an employer, the defendant’s conduct must have caused, in whole or in part, the alleged violation. While this particular factor is a necessary condition to liability, it alone is not sufficient. For example, if one employee were to somehow delete his co-worker’s hours from the company’s system, he would not thereby necessarily be an “employer,” even though he caused the violation. Other factors would still have to be examined to see if he could be held liable under the FLSA.
  • Fourth, and this follows from the previous point, the defendant must have actually exercised his authority, at least enough to have caused the violation in whole or in part. If a defendant does not exercise any authority, it cannot be that he is responsible for the violation. Nor does it suffice for the defendant to have exercised some arbitrary authority (e.g., sign a few checks). The authority exercised must be related to the violation.”

Because the brothers “did not control the company’s operations, whether considered day-to-day or big picture, and in particular . . . the work issues for the employees,” and because they were not aware of Lewis’ unlawful wage practices, they were not “employers” under this test. They “at most acted as sounding boards for Lewis and his ideas, and occasionally injected more money into the project,” the Court held.

While the language of the Schneider decision is clear, FLSA doctrine on these issues across the nation is less so. Individuals involved in businesses – be it as an investor, owner or executive with impact on Human Resources and compensation decisions – must be aware of this doctrine and take steps to minimize liability. Of course, substantive FLSA compliance is the best risk management tool.