Matt Hesketh

The District Court of Arizona recently reminded us that the “expansive” definition of “employer” under the FLSA includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.”  The Court held on summary judgment that a company owner was an employer because he had the authority to hire/fire employees and determine pay rates.

Under the FLSA, an employer is anyone who “exercises control over the nature and structure of the employment relationship, or economic control over the relationship.”  The Ninth Circuit applies a multi-factor “economic realities” test that asks whether the alleged employer has the power to (1) hire and fire employees, (2) determine the rate and method of payment, (3) supervise and control employee work schedules or conditions of employment, and (4) maintain employment records. No factor is dispositive, and courts look at the “circumstances of the whole activity.”

As applied to the case, the owner was an employer because he had a “significant ownership” interest and exercised “operational control of significant aspects” of the company’s day-to-day functions.  Although he had only a minority interest (20-30%), the Court found it significant that he was “the only active owner” and “at the very top of the company’s hierarchy” due to the apparent lack of a board or other officers.  In addition, the Court focused on the owner’s power to hire/fire employees regardless of whether he actually exercised the power.  Finally, even though the owner did not know the current pay rate, he had (1) personally determined the formula, (2) implemented it through payroll staff, and (3) approved subsequent adjustments.

The lesson: owners beware; with great responsibility comes great potential liability.

Read the full case here.