Donovan v. Agnew

Decision Date25 July 1983
Docket Number83-1133,Nos. 83-1102,s. 83-1102
Citation712 F.2d 1509
Parties26 Wage & Hour Cas. (BNA) 466, 98 Lab.Cas. P 34,418 Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, Plaintiff, Appellee, v. David AGNEW, et al., Defendants, Appellants. Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, Plaintiff, Appellant, v. David AGNEW, et al., Defendants, Appellees.
CourtU.S. Court of Appeals — First Circuit

Richard P. Ward, Boston, Mass., with whom Ropes & Gray, Boston, Mass., was on brief, for David Agnew and Charles Bradley.

Claire Brady White, Dept. of Labor, Washington, D.C., with whom T. Timothy Ryan, Jr., Sol. of Labor, Beate Bloch, Associate Sol., Ruth E. Peters, Washington, D.C., Counsel for Appellate Litigation, and Albert H. Ross, Regional Sol., Boston, Mass., were on brief, for Raymond J. Donovan.

Before COFFIN and BREYER, Circuit Judges, and SELYA, * District Judge.

COFFIN, Circuit Judge.

The Secretary of Labor ("the Secretary") brought this action in May of 1981 against Maxim Industries, Inc. and appellants 1 David Agnew and Charles Bradley, alleging violations of the minimum wage and overtime compensation provisions of the Fair Labor Standards Act ("the FLSA"), 29 U.S.C. § 201 et seq. Maxim Industries, now bankrupt, was a Massachusetts corporation engaged in the manufacture of fire trucks at a plant in Middleborough, Massachusetts. The Secretary's action resulted from Maxim's failure to pay 99 hourly employees and eight salaried managerial employees for work performed over two to three weeks in January of 1981, just prior to the closing of its Middleborough plant.

After cross motions for summary judgment, the district court conducted an evidentiary hearing limited to the issue of whether appellants as well as Maxim Industries were "employers" under the Act and thus personally liable for the alleged violations. In a March 1982 opinion the court held that they were. Shortly thereafter, Maxim Industries having entered bankruptcy, the district court, on the Secretary's motion, allowed a voluntary dismissal of the case as against Maxim.

Based on the parties' stipulation of unpaid wages, the court in December of 1982 ordered the payment of such wages to each of the 99 hourly wage employees, rejecting appellants' contention that the Secretary had failed to establish coverage of those employees under the FLSA. The court found, however, that the eight salaried managerial employees continued to be exempt from FLSA coverage despite nonpayment of their salaries.

Agnew and Bradley appeal the court's two rulings, 552 F.Supp. 1027 and 522 F.Supp. 1024, that they are employers and that the Secretary has established coverage; the Secretary cross appeals the exemption of the managerial employees.

I. Employer Status

The FLSA requires that employers pay to covered employees a minimum hourly wage. 29 U.S.C. § 206. "Employer" is defined to "include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee." 29 U.S.C. § 203(d). Taken literally this language would support liability against any agent or employee with supervisory power over other employees. It has, indeed, been interpreted expansively. In determining employer status, "economic reality" prevails over technical common law concepts of agency. Goldberg v. Whitaker, 366 U.S. 28, 33, 81 S.Ct. 933, 936, 6 L.Ed.2d 100 (1961). There may be several simultaneous employers. Falk v. Brennan, 414 U.S. 190, 195, 94 S.Ct. 427, 431, 38 L.Ed.2d 406 (1973); Hodgson v. Arnheim & Neely, Inc., 444 F.2d 609, 611-12 (3d Cir.1971).

The overwhelming weight of authority is that a corporate officer with operational control of a corporation's covered enterprise is an employer along with the corporation, jointly and severally liable under the FLSA for unpaid wages. See, e.g., Donovan v. Sabine Irrigation Co., Inc., 695 F.2d 190, 194-95 (5th Cir.1983), cert. denied, --- U.S. ----, 103 S.Ct. 3537, 76 L.Ed.2d ---- (1983); Marchak v. Observer Publications, Inc., 493 F.Supp. 278, 282 (D.R.I.1980); Brennan v. Whatley, 432 F.Supp. 465, 469 (E.D.Tex.1977); Hodgson v. Royal Crown Bottling Co., 324 F.Supp. 342, 347 (D.Miss.1970), aff'd, 465 F.2d 473 (5th Cir.1972); Schultz v. Chalk-Fitzgerald Construction Co., 309 F.Supp. 1255 (D.Mass.1970); cf. Chambers Construction Co. v. Mitchell, 233 F.2d 717, 724-25 (8th Cir.1956) (corporate officer within definition of "employer"; therefore trial judge did not abuse discretion in making injunction run against him personally). Personal liability has been found even against a corporate officer who lacks an ownership interest in the corporation, Sabine Irrigation Co., Inc., supra, 695 F.2d at 194-95; or who has minimal ownership interest, Usery v. Weiner Bros., Inc., 70 F.R.D. 615, 617 (D.Conn.1976).

The district court here found that during the relevant period Maxim Industries, Inc. was wholly owned by Maxim, Inc., which in turn was owned by appellants Agnew and Bradley, who together were President, Treasurer, Secretary and sole members of the Board of Directors of Maxim Industries, Inc. 2 It found that both appellants maintained offices at Maxim Industries' Middleborough plant and that both were actively engaged in the management, supervision and oversight of Maxim Industries' affairs, including employee compensation and benefits.

The court found specifically that appellant Agnew was personally responsible for allowing the company's worker's compensation insurance to lapse in derogation of its legal responsibility and personally took responsibility for making banking arrangements when informed in late 1980 that Maxim's payroll account could not cover its weekly payroll; and that appellant Bradley, during the latter part of 1980, personally supervised the cash flow of the company on a day to day basis, was personally involved in decisions about layoffs and employee overtime hours, and met frequently with the union president regarding the company's failure to make payments to the employees' pension plan, health insurance plan, and workers' compensation program. Specifically as regards the company's failure to pay wages during the last days of the company's operations, the court found that "Agnew and Bradley as principals of the firm knowingly undertook a calculated risk to keep the plant open, in spite of layoff recommendations from the bank, the union, and their own managers, and in spite of the company's inability fully to fulfill its statutory obligations to its employees."

Because the court conducted a full evidentiary hearing on the issue of appellants' employer status and entered findings of fact, we will not set aside those findings unless they are clearly erroneous. Rule 52(a) Fed.R.Civ.P. They are not. The question before us, then, is whether corporate officers with a substantial ownership interest in the corporation who are directly involved in decisions affecting employee compensation may be held personally liable for the corporation's failure to pay minimum and overtime wages as required under the FLSA.

Appellants contend that Congress did not intend to impose personal liability upon principals of a bona fide corporation except in those extraordinary circumstances--the corporation has been used as a personal conduit or there has been inadequate capitalization or fraud--that warrant "piercing the corporate veil" at common law. Acknowledging the weight of precedent to the contrary, appellants recommend to us the reasoning of two older district court decisions--Mitchell v. Jaco Pants, Inc., 14 W.H. Cases 245 (M.D.Ga.1959) and Goldberg v. Pure Ice Co., 45 CCH Labor Cases p 31,296 (E.D.Ark.1962). Both courts distinguished between holding a corporate officer or stockholder personally liable and making him personally subject to an injunction. As the court reasoned in Pure Ice Co.,

"[I]t is one thing to say that an individual officer or stockholder may be subjected to an injunction; it is quite another thing to say that merely because an individual connected with a corporation may fall within the statutory definition of an 'employer' such individual becomes liable personally for wages due employees under the Act.... Such personal liability should be imposed only where in ordinary civil litigation the corporate entity would be ignored and personal liability for corporate debts imposed on the individual involved."

The individual defendant in the Pure Ice case was president of the corporation and owned 75 per cent of its stock. On appeal, the Eighth Circuit affirmed but did not adopt the district court's reasoning, relying instead on facts indicating that the defendant was not directly involved in the operation of the company. The court indicated that it might reach a different result if there were "a combination of stock ownership, management, direction and the right to hire and fire employees." Wirtz v. Pure Ice Co., 322 F.2d 259, 263 (8th Cir.1963).

Appellants also argue by way of analogy to the National Labor Relations Act ("the Act"), under which corporate officers have not been held personally accountable for the corporation's backpay liability absent circumstances equivalent to those that would justify piercing the corporate veil at common law. 3 See Concrete Mfg. Co., 262 NLRB No. 92 (1982); Chef Nathan Sez Eat Here, Inc., 201 NLRB 343 (1973); Riley Aeronautics Corp., 178 NLRB No. 495 (1969). Appellants urge that reference to NLRA precedent is apt in interpreting the scope of the term "employer" under the FLSA because when enacted in 1935, three years before the enactment of the FLSA, the NLRA defined employer as does the FLSA. They also point out that the legislative history of the Taft-Hartley amendments to the NLRA, which amended the NLRA's definition of employer, indicates that Congress' intent in the original definition was to make employers liable for the acts of their agents, not vice versa.

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