SW Legal studies in Business

Employing Corporation, Not Managers, Are Liable for Unpaid Wages of Employees
Description

Nevada high court held that when a corporation went bankrupt, and failed to pay employees’ wages, the employees could not sue the managers of the corporation for the wages, even though the managers owned the corporation.

Topic Business Organization
Key Words

Employer; Manager; LLC; Liability; Unpaid Wages

C A S E   S U M M A R Y
Facts

Former employees of the Castaways Hotel in Las Vegas sued to recover unpaid wages they lost when the hotel-casino filed for bankruptcy. They sued several former high-level mangers at Castaways. The managers were also the owners of Castaways, which was incorporated as an LLC. The former employees contend that under state law, the managers were liable for their wages. The federal district court dismissed the suit, concluding that, under Nevada law, the managers were not employers. Appellants appealed. The federal appeals court certified a question to the Nevada high court about the legal liability of managers and employers under Nevada law in such situations.

Decision

Question answered. Generally, a corporate officer is not considered the employer responsible for creating the contractual employment relationship and is not personally liable for a breach of that relationship. Under Nevada corporate law, individual liability does not extend to officers, directors, or stockholders of a corporation unless otherwise provided by specific statute. Individual management-level corporate employees cannot be held liable as “employers” for the unpaid wages of employees under Nevada’s wage and hour laws. The employees’ claim was against the corporation, the Castaways, as their employer, not against the manager-owners of the Castaways.

Citation Boucher v. Shaw, 196 P.3d 959 (Sup. Ct., Nev., 2008)

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