First Circuit Clarifies When High-Level Executive May Be Subject to FLSA Liability

In Manning v. Boston Medical Center Corp., a case that creates concern for high-level executives but provides a measure of relief for senior human resources employees, the U.S. Court of Appeals for the First Circuit vacated a district court’s dismissal of claims against the defendant’s former president and CEO and held that Fair Labor Standards Act overtime claims were sufficiently pled against her. However, the First Circuit affirmed the district court’s dismissal of FLSA claims against the defendant’s former senior human resources director (HRD). Manning comes shortly after the Second Circuit Court of Appeals’ decision in Irizarry v. Catsimatidis, where the court also held that a CEO could be personally liable for the company’s alleged FLSA violations.

Manning arose out of putative collective and class actions filed by current and former hourly, non-exempt employees who sued a hospital, related entities, the former CEO, and the former HRD, alleging FLSA and several Massachusetts statutory and common law claims based on an alleged failure to pay for all time worked. At the district court, the defendants moved to dismiss all of the claims and strike the collective and class action allegations. The defendants argued, in part, that all of the plaintiffs’ claims required dismissal because they failed to plead plausible claims under the U.S. Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal. The defendants also argued that all of the plaintiffs’ state law claims were preempted by section 301 of the Labor Management Relations Act (LMRA) because the plaintiffs were union members covered by collective bargaining agreements and their causes of action were founded directly on or required interpretation of the union agreements. The district court dismissed all of the claims and the collective and class allegations.

On appeal, the defendants urged the First Circuit to follow the Second Circuit Court of Appeals’ recent decision in Lundy v. Catholic Health Systems of Long Island, Inc. in which the court affirmed the dismissal of overtime claims because the complaint failed to sufficiently allege uncompensated hours worked, thus providing only “low-octane fuel for speculation” that the plaintiffs actually worked overtime. The First Circuit distinguished Lundy, however, finding that the Manning plaintiffs asserted more facts to make plausible that they did in fact work over 40 hours without proper compensation. Thus, the court concluded, the Manning plaintiffs had pled viable FLSA and certain other state law claims. As to the LMRA preemption argument, the court found that the state law claims in the plaintiffs’ amended complaint were only brought on behalf of non-union employees and therefore were not preempted. The First Circuit also vacated the dismissal of the collective and class allegations, finding the claims intertwined with the substantive FLSA and state law overtime claims, which it had restored. Further, the First Circuit found that the issue of whether the case should proceed as a collective or class action could be addressed through other tools, such as a properly-brought motion for class certification.

Regarding possible individual liability, the First Circuit held that the plaintiffs pled viable claims against the CEO because their complaint suggested that “she was in a position to exert substantial authority over corporate policy relating to employee wages.” The court relied on allegations that the CEO was involved in the reduction of jobs and services due to budgetary constraints and was involved in decisions to cut staff positions and reduce the company’s spending. The First Circuit found these assertions supported the notion that the CEO “had the authority to, and did, make critical decisions regarding the allocation of the defendant’s resources, thereby buttressing the inference that she had the type of operational control over the company that would give rise to individual FLSA liability.” The majority rejected the dissent’s view that the complaint must show “that the plaintiffs’ compensation was sufficiently within the defendant’s bailiwick to justify holding [the CEO] personally liable.” Rather, the majority found sufficient allegations that the CEO repeatedly exercised the authority to establish company-wide policy regarding employment-related matters and made significant decisions regarding the allocation of financial resources that directly affected employees.

The First Circuit reached a contrary conclusion regarding the HRD. The court found that he occupied a position more akin to a senior employee than a corporate official. The complaint lacked allegations that the HRD had corporate officer status or an ownership stake in the company, and there were no specific allegations supporting the inference that the HRD controlled the defendant’s purse strings or made decisions about the allocation of financial resources. Thus, the court found, there was no plausible inference of individual liability under the FLSA.

CEOs and other high-level executives should take note that under the First Circuit’s interpretation of the FLSA, participating in decisions affecting staffing and the allocation of financial resources may subject them to FLSA claims. This decision is a reminder that high-level company executives who have operational responsibility should be mindful of the company’s compliance with the FLSA.

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Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.