By David M. Stevens

When an employee files a claim for unpaid wages under the Fair Labor Standards Act (FLSA), she will often name both the employer and one or more of its owners or executives as defendants. Claims against individual defendants are based on the definition of "employer" under wage and hour law, which has been found to support personal liability in certain cases.

Maryland's federal court was recently faced with an unusual scenario when a company being sued for wage and hour violations attempted to bring one of its managers into the litigation, arguing he was also an "employer" under the law and was therefore responsible for a portion of any judgment against the company and its owners. Let's take a closer look at this interesting case.

Court Gives Manager Something to Crow About

Erin Montgomery claimed that her employer, Iron Rooster-Annapolis, failed to pay her wages she was owed under the FLSA, the Maryland Wage and Hour Law, and the Maryland Wage Payment and Collection Law. She named Iron Rooster and its three owners as defendants in the lawsuit. In response, Iron Rooster filed a pleading known as a third-party complaint in which it sought to assert claims against Douglas Degler, who had been general manager of the restaurant where Montgomery worked.

The restaurant's theory in seeking to add Degler as a party to the litigation was that as the person in charge of supervising employees and managing the restaurant, he was responsible for any failure to pay Montgomery the appropriate wages and he therefore should be deemed "jointly liable for his pro rata share" of any judgment entered in her favor under theories of indemnification and contribution. Degler asserted that he didn't supervise or control Montgomery's day-to-day activities at the restaurant, so he couldn't be held liable for any wage violations with regard to her employment.

In considering whether the restaurant's claim against Degler could proceed, the court applied its traditional test for assessing whether a particular individual is an "employer" within the meaning of the FLSA.

The federal statute defines an employer as "any person acting directly or indirectly in the interest of an employer in relation to an employee." In applying that standard, the court looked to several factors relevant to assessing the economic realities of the relationship—namely, whether the alleged employer (1) has the authority to hire and fire employees, (2) supervises and controls work schedules or employment conditions, (3) determines the rate and method of payment, and (4) maintains employment records.

After considering the relevant factors, the court concluded that the evidence didn't show that Degler exercised the degree of managerial control necessary to qualify as an employer for purposes of the FLSA. The court took particular note of the fact that he didn't have an ownership interest in the company and had previously filed a claim against Iron Rooster for unpaid wages in connection with his own employment. The court therefore dismissed the restaurant's claim against Degler. Montgomery v. Iron Rooster-Annapolis, LLC (No. 16-3760).

Bottom Line

This case provides useful guidance for employers faced with wage and hour claims by employees. Notably, the court didn't categorically rule out the indemnification and contribution theory asserted by the restaurant with regard to its former manager.

Although the court found the facts of this particular case didn't support such a claim, an employer facing a lawsuit for unpaid wages should at least consider whether its circumstances might support the assertion of a claim against the supervisor responsible for overseeing the disgruntled employee's work, particularly if the violations were brought about by a disregard for company policies (e.g., the manager secretly directing the employee to work off the clock).

At the same time, this decision makes clear that an employer will not generally be able to shift liability to a supervisor for a failure to comply with the wage and hour statutes, absent the supervisor's exercise of a high degree of control over the employer's operations—and, more specifically, over the circumstances of the employee's employment.

David Stevens, editor of Maryland Employment Law Letter, can be contacted at dstevens@wtplaw.com or 443-263-8250.