Courts Imposing Personal Liability on Company Execs in Employment Cases

September 14, 2007
By Joanne Deschenaux

An increasing number of state and federal courts are holding corporate officers, executives and managers personally liable under federal and state employment laws. Individual executives can personally be on the hook for millions of dollars, Jonathan Wetchler, an attorney in WolfBlock's Philadelphia office, told SHRM Online. And this liability can extend to HR managers, added Shanti Atkins, president and chief executive officer of ELT, an online training provider that uses content from Littler Mendelson, in a Sept. 7 interview.

Although courts have not imposed personal liability under federal nondiscrimination laws, such as Title VII, liability has been imposed under other federal laws, such as the Family and Medical Leave Act and the Fair Labor Standards Act (FLSA). Personal liability has been imposed as well under state nondiscrimination laws and state wage and hour laws.

HR Managers Should Educate Themselves

In determining whether to hold an executive or manager personally liable, courts ask whether the individual acted within the scope of his or her duties, Atkins said. "It's when the conduct was outside of the authorized duties of managers that you get exposed to liability."

Many HR managers don't realize that the possibility of personal liability exists, Atkins noted, and they need to become aware and take steps to protect themselves. To do that, she stressed, "A basic understanding of employment laws is critical. Knowing that it can hit you personally should make you more motivated to know the rules."

Many companies have focused on compliance in certain areas, such as harassment prevention, Atkins said. In those areas, there is a better understanding among HR managers of the legal do's and don'ts. However, the "hot new area for individual liability for HR managers is wage and hour violations," Atkins observed, noting that HR managers generally don't know as much about the requirements of these laws as they do about anti-harassment and anti-discrimination laws.

"Wage and hour laws can be complex, and some of them are not common sense," Atkins said, adding that there has been a "litigation tidal wave" in this area. "Most employers are struggling with how to handle wage and hour litigation."

In addition, HR is sometimes "afraid" of learning these laws because they are complicated, according to Atkins. However, "HR is completely competent and sophisticated enough to understand" this area of the law. HR managers therefore need to educate themselves about wage and hour laws, Atkins said, noting that "it's not uncommon for HR to be the 'point person' for a training program that they themselves do not take."

Any training session should include information about potential personal liability for violations of the law, she emphasized. Such liability could exist under wage and hour laws, for example, if an HR manager instructed employees to write off 5 percent of overtime in an attempt to control overtime costs, or if HR promoted and approved a policy, requested by employees, permitting employees to skip mandatory break periods and leave work early, Atkins explained.

"Rather than being scared by the notion of individual liability, use it as motivation to become an expert," Atkins suggested.

HR Should Educate the Organization

In one recent case (Chao v. Hotel Oasis Inc., No. 06-1021 (June 28, 2007)), the 1st U.S. Circuit Court of Appeals held a hotel president personally liable for multiple FLSA violations, based on the fact that the president had day-to-day control over the business and its employment practices and was instrumental in causing the corporation to violate the FLSA.

This illustrates the next step that HR should take: After educating themselves, HR professionals should try to educate the organization, Atkins said. Any training program must be "pushed down" the organization. In the wage and hour area, employees must know, for example, that they need to report hours and should speak up if they find problems on their pay stubs.

However, equally important is training "up"—reaching managers and executives. HR may meet resistance in this area, Atkins observed, with managers saying either that they "know the law" or that they are "too busy."

She advised that HR counter these arguments by pointing out that if an organization, including its executives, receives periodic training, it may reduce the risk of it being found liable for violations of state and federal employment laws. The court doesn't care if the training is "redundant," with overlap from year to year, or that the organization's executives were "too busy" to receive training, she observed.

And courts' willingness to impose personal liability may actually help HR to get management to listen to suggestions, according to Wetchler. "HR has a hard time getting the attention of senior management," he said. "There may be a legal risk, but an executive still might say, 'why should we do what you are asking?' "

Wetchler gave the example of an HR person trying to explain to a senior executive why money should be spent on a new time-keeping system, which would help avoid wage and hour claims. Most executives would be influenced by the need to comply with the law and the impact on the bottom line if a class action is filed, he said, but the possibility of "individual liability may be the thing that puts managers over the top." This is "an additional hook, a further wake-up call" of the consequences of failure to comply with wage and hour laws, Wetchler concluded.

Joanne Deschenaux, J.D., is SHRM's senior legal editor.