Thursday, June 19, 2014

Personal Liability for Owners and Managers: Back In The News

This morning, the U.S. Supreme Court issued an important decision for public employers. The Court ruled that the subpoenaed testimony of a public employee should enjoy First Amendment protection, and that the public employee should not be terminated for that testimony.  That was the easy part.  The more controversial piece of the Court’s decision was about whether the supervisor who terminated the employee could be sued as an individual – putting his own assets at risk.  The Eleventh Circuit had said yes.  The U.S. Supreme Court reversed the 11th Circuit and said no, ruling that the supervisor was entitled to qualified immunity, which grants public employer supervisors “breathing room to make reasonable but mistaken judgments about open legal questions.”

Owners and managers in private companies may not enjoy the same “breathing room.” For decades, under the Fair Labor Standards Act, Family and Medical Leave Act, and other employment laws, individuals (both owners and supervisors) have been held personally liable for acts and decisions that resulted in violations.  For example, if a manager with sufficient authority was found to have instructed employees to work “off-the-clock” overtime without pay in violation of state or federal law, that supervisor could have her personal bank account and other assets seized to pay a court-order judgment.

Late last week, the Seventh Circuit Court of Appeals issued an opinion that illustrates how far personal liability may extend for business owners.  In NLRB v. HH3 Trucking, Inc., a trucking company failed for years to pay a judgment to cover back wages as ordered by the National Labor Relations Board. After many attempts to get compliance – including obtaining a court order directing the arrest of the owners – the Board eventually asked the Seventh Circuit to order that the individual owners pay the $190,000+ judgment out of their personal retirement funds.  The owners refused, arguing that the Employee Retirement Income Security Act protected those funds and that the NLRB could not touch them.  The Seventh Circuit rejected the owners’ argument and will allow the personal retirement funds to be used to pay the judgment.

The lesson here is that in private business – especially for the small employers who employ over 49% of workers in the private sector – legal compliance does not just affect your business.  Judgments and penalties that result from compliance failures could result in personal financial consequences as well.  Because ignorance of the law is almost never an effective defense, it’s important to identify and correct liability risks.

Posted by: Kate Bischoff