In Boucher v. Shaw, Nos. 05-15454 and 05-15702 (9th Cir. 2009), three former employees of the Castaways Hotel, Casino and Bowling Center (the “Castaways”), acting for themselves and a class of other Castaway employees, and the employees’ local union sued the Castaways’ individual managers for unpaid wages under Nevada and Federal Law. The Castaways had filed for Bankruptcy under Chapter 13, and was later liquidated under Chapter 7. The plaintiffs alleged the following facts as to the defendant-managers. One manager, Dan Shaw, had been the Castaway’s Chairman and Chief Executive Officer. The second manager, Michael Villamor, was responsible for handling the Castaway’s labor and employment matters. The third manager, James Van Woerkom, was the Castaways’ Chief Financial Officer. Shaw had a 70 percent ownership interest in the Castaways, and Villamor had a 30 percent ownership interest. Each defendant had custody and control over the plaintiffs, their employment and their place of employment at the time the wages were due.
In accordance with the answer received after certifying the question to the Nevada Supreme Court, the Ninth Circuit found that the defendants were not liable for the unpaid wages under Nevada law. As to Federal law, the Court indicated that the Fair Labor Standards Act (the “FLSA”) governs. The Court said that the defendants will be individually liable for the plaintiffs’ unpaid wages if they are “employers” within the meaning of the FLSA. The FLSA defines “employer” as any person acting directly or indirectly in the interest of an employer in relation to an employee.
The Court noted that the FLSA’s definition of “employer” is not limited by the common law concept of employer, but is to be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes. If an individual exercises control over the nature and structure of the employment relationship, or exercises economic control over this relationship, that individual is an employer within the meaning of the FLSA. The Court held that, if the facts alleged as to the defendants are true, each defendant is an “employer” and thus liable for the unpaid wages. The Court also ruled that the Castaway’s bankruptcy and liquidation has no effect on the outcome of the case. The Court remanded the case back to district court to determine the facts.