In the case of Montgomery v. Iron Rooster- Annapolis, LLC, et. al., the United States District Court for the District of Maryland addressed whether a general manager may be considered an “employer,” and therefore be held liable for claims for unpaid wages and statutory damages under the Fair Labor Standards Act (“FLSA”), the Maryland Wage and Hour Law (“MWHL”) and the Maryland Wage Payment and Collection Law (“MWPCL”).
The plaintiff was a bartender who sued Iron Rooster Annapolis and its three co-owners in the Circuit Court for Baltimore City, seeking to recover unpaid wages and statutory damages. The defendants then removed the case to federal court and subsequently filed a third-party complaint against Iron Rooster’s former general manager. The defendants essentially claimed that the former general manager was also the plaintiff ’s employer, and was therefore jointly and severally liable for any judgment entered under theories of indemnification and contribution.
The manager filed a motion for summary judgment, alleging that he did not control the day-to-day activities of the plaintiff; in support of this, the manager attached a settlement agreement between himself and the defendants in his own prior claim for wage loss against the defendants. The defendants responded by claiming the manager was liable as a “joint employer,” because the plaintiff reported to and worked under the manager, who supervised the plaintiff ’s work, set her schedule, and performed other management functions associated with the plaintiff ’s work for the defendants.
The Court looked to FLSA for guidance. FLSA defines an employer “as any person acting directly or indirectly in the interest of an employer in relation to an employee.” In determining whether someone qualifies as an employer under the FLSA, courts employ what is known as the “economic realities test,” which looks at multiple factors, including 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.” None of these factors are dispositive, rather, courts looks to the “totality of the circumstances” in order to determine whether an individual may be held liable as an employer. In considering the totality of the circumstances, courts will also look to “a person’s job description, his or her financial interest in the enterprise, and whether or not the individual exercises control over the employment relationship.”
After reviewing the facts of the case, the Court determined that the manager was not an employer as alleged by the defendants, and granted summary judgment in favor of the manager. Although some of the manager’s duties indicated that he may have met the factors of “economic realities” test, the Court reasoned that under the totality of the circumstances, the manager’s work involved “operational acts,” which did not amount to the type of “managerial control” necessary to establish the manager as an employer. The Court looked to the fact that the manager himself was an employee, as evidenced by the settlement agreement in the manager’s own prior claim for wage loss against the defendants, and, moreover, the manager was still subject to the defendants’ “ultimate managerial control.” Additionally, the Court looked to the fact that the manager had no financial interest in the defendants’ company, other than as an employee.
The Court did not completely rule out the possibility that managers could be potentially held liable for wage loss claims. Any employers seeking to minimize and/or avoid liability for wage loss claims should be aware that managers may be considered “employers” under FLSA in certain circumstances. However, employers who give their managers wide latitude to conduct the “operational acts,” or day-to-day activities of the business, should be aware that unless the manager exercises a large degree of “managerial control,” or has a stake in the business, the manager is unlikely to be held liable as a co-defendant under FLSA. Employers seeking to minimize liability for wage loss claims should make sure to develop and distribute detailed policies for the recording of hours and payment of wages. If a violation is brought about by a manager’s disregard for these policies, this might support a claim against the manager as a third party.
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