For years, the Fair Labor Standards Act has been interpreted to allow claims against individual managers who violate overtime or minimum wage requirements. In a troubling development for upper management, earlier this month the Second Circuit Court of Appeals held the owner and chief executive officer of a company found to have violated the FLSA personally liable for such claims, despite the fact that he was not directly responsible for such violations.

In Irizarry v. Catsimatidis, the employer settled a class action claim brought against it by store managers who alleged that they were misclassified and not paid overtime. When the company defaulted on the settlement agreement, the plaintiffs asserted claims against the owner and CEO. He claimed that individual liability under the FLSA only applies when the manager in question is personally complicit in the wage violations.

The Second Circuit rejected this defense, finding the executive liable for the settlement payment. The defendant had overall operational control over the business, including personnel and payroll matters. The fact that he rarely exercised such direct control is irrelevant to the issue of personal liability under the FLSA.  Individuals with operational control over the business are defined as employers under the FLSA.

Employers are liable under the FLSA for double damages plus attorneys' fees, interest and costs. In class action claims, these damages and costs can easily reach into seven figures or more. State law may limit the company's ability to indemnify executives for personal claims relating to such violations. If for no other reason, the possibility of personal FLSA claims against executives should prompt companies to review their wage payment practices to confirm that they are meeting legal requirements.