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Limited Liability Company Member Not an Employer Under NC Wage and Hour Act

    Client Alerts
  • July 06, 2016

The North Carolina Wage and Hour Act imposes liability on employers for failure to pay promised wages. The law is modeled after the federal Fair Labor Standards Act, and like the FLSA, individual managers and officers of a company can be deemed statutory employers, personally liable for wage payment claims. Last month, the North Carolina Court of Appeals concluded that a sole member of a limited liability corporation whose primary role in the business involved funding, was not personally liable for failure to pay wages to the LLC’s manager.

In Powell v. P2Enterprises, LLC, the plaintiff managed the LLC and served as the general manager for a restaurant owned by the company. When the restaurant faced financial problems, he sued the LLC’s sole member, claiming personal liability for missed wage payments. The trial court dismissed the wage claims on summary judgment, and the plaintiff appealed to the North Carolina Court of Appeals.

The Court of Appeals likewise affirmed dismissal of the claim. In analyzing the question of whether the member was an employer under the Wage and Hour Act, the court applied the same economic realities test used under the FLSA to make this determination. Under these criteria, the Court of Appeals concluded that the plaintiff rather than the defendant met the criteria for employer status. He and not the defendant exercised control over restaurant employees, including scheduling, establishing pay rates and hiring and firing staff. The defendant’s role as an investor who occasionally stepped in when necessary to assist with management tasks did not meet the economic realities threshold.

This case confirms the general view that primarily passive investors in a business venture do not exercise the degree of control over employees that would create personal liability for wage payment claims. Unless the investors take a more active role in the day-to-day supervision of employees, they should be able to avoid claims based on failure to pay wages to such employees.