let’s talk... What Happens in Vegas Does Not
Always Stay in Vegas By: Brook Carroll
T
he bankruptcy and closure of the Castaways Hotel and Casino in Nevada offers a
cautionary tale for business owners and employers who are going out of business or facing insolvency. As the California economy continues to languish in the doldrums, employers are not feeling optimistic, particularly with a reported 12.8% statewide unemployment rate in July 2010. Along with a high unemployment rate comes further lay-offs and business closures. Catchy advertising aside, what happened after the Las Vegas hotel’s closure has implications for senior management and business owners in California, even if the corporate umbrella would appear to shield them from individual liability. The continuing trend in business closures may result in unexpected wage claims against these individuals, even years after their businesses close.
In the case of the Castaways Hotel, former employees sued the casino’s CEO, CFO and senior human resources executive to recover unpaid wages under the Fair Labor Standards Act (FLSA), the federal counterpart to California’s wage and hour rules. [Boucher v. Shaw, 572 F.3d 1087 (9th Cir. 2009)] The former employees worked at the hotel while it was operating during bankruptcy, and sought accrued but unpaid holiday and vacation
time. The executives argued that the hotel corporation, not them, was the plaintiffs’ “employer” and thus was solely responsible for the unpaid wages. The 9th Circuit Court of Appeals disagreed and ruled that individual corporate managers who exercise control over the employment relationship are personally liable under the FLSA for unpaid wages and overtime, even if the employer is insolvent and out of business; and even though the employer went through a bankruptcy proceeding to address the business’s debts. Thus, under the FLSA a business’s principals may be on the hook to pay employee wage claims if the company does not (or cannot because it has closed).
On this point, the FLSA differs substantially from state law, under which managers and owners are rarely responsible personally for the company’s wage and hour violations. And, if readers believe that their businesses are too small to be covered, think again – the FLSA applies both to businesses that gross $500,000 or more annually and to every employee in any business whose work is part of “interstate commerce.” Using the phone or e-mail to conduct business could be “interstate commerce.” This broad notion of interstate commerce covers many employees across a spectrum of
industries, since even so-called local businesses often engage in business outside of their geographic area.
To minimize personal liability in financially troubled circumstances, owners and executives should make payroll their number one priority. Further, management should be proactive with the existing workforce and perform lay-offs before the company incurs wages or paid time off that it cannot afford. Finally, owners and managers should keep detailed written records of hours worked and wages paid, even if the business closes. A well-documented and orderly winding down of a business’ affairs – through which managers pay or compromise potential claims before the business shutters its doors for good – may help avoid adding individual injury to corporate insult.
Brook Carroll, a partner with Nordman Cormany Hair & Compton, LLP (
www.nchc.com), resolves and litigates business and employment disputes, and may be reached at
bcarroll@nchc.com.
LAW
September 2010 CA Employer
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