A Timely Reminder: Failure to Pay Wages Can Have Personal Consequences

The recent economic downturn has required employers to make a broad array of cuts in the workplace, from reducing fringe benefits or employer sponsored events to laying off employees. At a time when the need to reduce costs can be overwhelming, it is important to remember that cutting costs by failing to comply with wage-hour and wage payment laws can be risky and costly, for both the company and its managers.

Both federal and Maryland law provide minimum wage and overtime requirements. The federal requirements, contained in the Fair Labor Standards Act, provide that the "employer" who is subject to liability for violations "includes any person acting directly or indirectly in the interest of an employer in relation to an employee." This means that failure to pay the wages required by the FLSA can result in an award of damages not only against the employing company itself, but also against the employer's president, CEO, or other officers responsible for the payment of the employee's wages. Such liability has been imposed upon a company's president by the District of Maryland following the court's determination that the president "played a primary role in virtually every aspect of [the company's] operations, including virtually every aspect of personnel." Chao v. Self Pride, Inc., 2005 U.S. Dist. LEXIS 11653 (D.Md. 2005).

Maryland imposes its own minimum wage and overtime requirements, and the Maryland Wage and Hour Law's definition of "employer" contains language identical to the FLSA with respect to persons acting in the interest of an employer in relation to an employee. So individuals involved in a company's decision-making may face personal liability in a state court action to recover wages withheld in violation of the Wage and Hour Law.

Of course, not all wage disputes involve minimum wage or overtime claims subject to the FLSA or the Maryland Wage and Hour Law. Other types of claims could include the failure to pay bonuses or other amounts promised to the employee. The causes of action available to an employee in that case would come under the Maryland Wage Payment and Collection Law and a claim for breach of contract. On this front, the news is better for individual managers and officers.

Under the Maryland Wage Payment and Collection Law, the definition of "employer" does not include language like "persons acting . . . in the interest of an employer." As a result, in Watkins v. C. Earl Brown, Inc., 173 F. Supp. 2d 409 (D.Md. 2001), the court found that the Maryland Wage Payment and Collection Law did not create personal liability for a general manager acting on behalf of his employer with respect to the payment of the plaintiff's wages.

While the Watkins decision provides some peace of mind for those who manage wage payment decisions for their employers, the potential risks to the company for failure to comply with the Wage Payment and Collection Law, as well as the potential individual exposure attached to violations of the FLSA and Maryland Wage and Hour Law, dictate that managers act with caution in taking actions with respect to employee wages. Employers are encouraged to give managers proper training and to contact experienced legal counsel in the event that any uncertainties arise.