Cliff Rudolph's Insurance Blog: You May Be Held Personally Liable for Wage and Hour Violations

If you are in HR, are a director or officer of an organization, and/or a hiring/firing manager a recent decision by the Ninth Circuit Court of Appeals should be of significant concern. In Boucher v Shaw (July 2009) the court held that individual managers can be held liable for unpaid wages under the Fair Labor Standards Act.

One of the most frequent claims I see are lawsuits stemming from employee related allegations of wrongful termination, workplace discrimination, workplace harassment, and wage and hour claims.

Previously it was argued that an organizations managers, officers and owners could not be personally liable for the corporation's wage and hour violations. In Boucher vs. Shaw, Castaway Hotel Casino and Bowling Center filed for Chapter 7 liquidation bankruptcy in 2004; shortly thereafter a suit was filed for unpaid wages, vacation and holiday pay under the federal Fair Labor Standards Act(FSLA).

On appeal, the Ninth Circuit held that former employees of Castaways could pursue federal wage and hour claims filed personally against the CEO, CFO and other officers of the corporation.

Consider for a moment how it would effect you personally to be held personally liable for an employee related lawsuit. Not fun.

This is a significant issue for all employers. Furthermore, many organizations that purchase EPLI insurance (Employment Practices Liability Insurance) to defend and pay claims related to employee suits will be surprised to find out that the policy may not pay for claims against individuals.

Insurance coverage is available on a limited basis. Many of the common carriers of EPLI--Hartford, Travelers, CNA, Chartis, Chubb offer coverage for defense, some may offer indemnity. But it many cases coverage must be requested, and coverage varies from carrier to carrier. Seldom will a carrier offer to pay for a claim for wages.

Also, it is critical to check Who Is an Insured on your EPLI policy. While typically employees, officers, etc are considered insureds, policy language varies and you may also be faced with an insured vs insured exclusion, nullifying coverage.

Conclusion: Always request this coverage on EPLI policies. Be clear as to what's covered ( usually just defense) and what limit applies.

Here is a good article to read http://www.hartfordhelp.com/article.htm?id=2157

Cliff Rudolph