Good Company

Now It's Your Problem Too: Personal Liability Issues Faced by Supervisors

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The acts, omissions, misstatements and misdeeds by employees, as we all know, can end up in claims against their company. Employers can end up paying for the liability created by their representatives, including supervisors, if those individuals, because of the very nature of their duties, are deemed to be authorized to act on behalf of the company. It is not uncommon for employers to be liable for conduct that they were not aware of or officially endorse. This can be a problem. Should executives, supervisors and managers also be concerned about individual liability? The simple answer: It depends. Generally, especially in the area of employment law, courts have held that a supervisor cannot be held individually liable for employment claims by employees or applicants. This determination usually centers around an analysis of who falls under the definition of an "employer" for purposes of the statute or theory of liability at issue. There are however cases where supervisors can be held to be individually liable for their employment decisions and therefore they are open to being responsible for damages and perhaps attorney's fees and costs. This can be sobering news for supervisors but it is important to review these matters.

Liability for Wage and Hour Violations
The payment of wages is perhaps the most common issue that human resource professionals and other supervisors face. This may come as a nasty shock to officers or managers of companies doing business in New Hampshire, but under New Hampshire wage and hour law, an officer or "agent" of a corporation can be held personally liable for failure to pay wages to employees. N.H. RSA 275:42,V provides, "[f]or the purposes of this subdivision the officers of a corporation and any agents having the management of such corporation who knowingly permit the corporation to violate the provisions of RSA 275:43, 44 shall be deemed to be the employers of the employees of the corporation." (emphasis added).

An officer or agent knowingly permits the corporation to violate these provisions of the labor laws if such officer or agent acts voluntarily "proceeding neither from mistake nor inadvertence." Therefore, if the officer or agent knows that the company is unable to pay the wages of its employees and continues to employ those employees, the officers or agents may be personally liable for the unpaid wages.

Under the federal Fair Labor Standards Act ("the FLSA"), employers must follow the FLSA requirements or be liable for damages and even criminal penalties for violating FLSA provisions. The FLSA defines "employer" to include "any person acting directly or indirectly in the interest of an employer in relation to an employee". See 29 U.S.C. §203(d). Federal courts have routinely held that this definition of employer is to be broadly interpreted. The logic is that "employer" should be broadly construed in order to achieve Congress's intent to provide a remedy to employees for their employers' wage and hour violations. Even with such a broad definition, courts have declined to find that any person who has supervisory power, without more, is automatically an employer. Instead, courts generally look at the "economic reality" of an individual's status in the workplace before judging liability. This is determined by analyzing a number of factors, such as: (a) the person's job description; (b) his or her financial interest in the enterprise; and (c) the degree to which he or she is involved in hiring and firing employees. Other factors include the individual's involvement in day-to-day operations as they relate to defining the terms of employment, workplace conditions, and the level of compensation to be received by employees.

Individual Liability Under the FMLA
Federal courts have analyzed the issue of whether individuals, such as corporate officers, may be liable for violations of the Family and Medical Leave Act of 1993 ("the FMLA"). There are some courts that have rejected individual liability under the FMLA. These courts arrived at this conclusion by construing the term "employer" as it is sometimes read under Title VII of the Civil Rights Act of 1964. So much for the good news. Other courts have reached a different conclusion. These courts looked to the FLSA for guidance in construing the term "employer". The broader definition of the term "employer" in the FMLA includes "any person who acts, directly or indirectly, in the interest of the employer to any of the employees of such employer." Based on this broad definition, courts have determined that individual liability was appropriate under the circumstances.

Individual Liability for Violations of Title VII and the ADA
Our New Hampshire federal court has consistently held that there is no individual liability under Title VII under the Civil Rights Act of 1964. Similarly, our U.S. District Court for the District of New Hampshire has concluded that the Americans with Disabilities Act ("the ADA") does not subject individuals to liability.

Individual Liability for Wrongful Termination Claims
A "wrongful termination" claim is among the most common employment claims asserted by former employees. This is not a statutory claim. Instead, the wrongful termination claim is one that has been developed by case law. In New Hampshire, a plaintiff that seeks to establish a wrongful termination claim must prove two things: (1) that the employer terminated the employment out of bad faith, malice, or retaliation; and (2) that the employer terminated the employment because the employee performed acts that public policy would encourage or because the employee refused to perform acts which public policy would condemn."

The elements of this claim speak to actions of "the employer" or "the employee." However, the employer often acts through its supervisors. Can a supervisor be held individually liable in a wrongful termination claim? Our courts have held "no," because the claim requires an underlying employment relationship between the plaintiff former employee and the defendant employer. If the defendant supervisor is a supervisor only, and not the employer, than no employment relationship exists between the plaintiff and the defendant and the plaintiff's wrongful termination claim fails.

How to Minimize the Risk of Liability
How can you as a supervisor avoid individual employment liability? There is no magic solution or easy answer to avoid the potential for liability for employment decisions you make. However, there are some steps you can take to minimize the risk of liability.

• Utilize training opportunities — some employers conduct in-house training concerning employment law issues. There are other training opportunities available through professional seminars on employment related issues. Take advantage of any training offered to you, and seek out training opportunities to fill in areas of knowledge you lack. If you have a better understanding of areas of employment law, you will be able to identify red flags before making a decision.
• Make educated decisions — get the facts and verify them before making any decision. Easier said than done? Perhaps, but it's far easier to defend a decision later when you have spent the time carefully analyzing information before you come to an educated conclusion.
• Involve the experts — when it comes to employment decisions, it makes sense to consult your human resource professionals and attorneys before and not after you make a significant decision such as the discipline or termination of an employee.