In a recent case, the court found that plaintiffs established violations under the Fair Labor Standards Act (“FLSA”) for unpaid minimum wages and retaliation, as well as breach of contract for failing to pay employees under employment contracts. The court found the employer business liable for damages for these violations and also decided to pierce the corporate veil to hold the business owner personally liable for damages.
Scott v. Trustify Inc.
In Scott v. Trustify Inc., the plaintiffs were employees of Trustify, Inc. until November 26, 2018, when they were fired. Trustify is a start-up technology company that connects private investigators with individuals and businesses inside and outside Virginia. Daniel Boice is the founder and CEO of Trustify. Boice commingled Trustify’s funds with his personal funds, using Trustify funds to pay for personal expenses. By fall of 2018, Trustify was in financial distress and untimely paid plaintiffs in October 2018 and bounced several employees’ paychecks. One payday in November, Boice stated that he was going to the bank to get the employees’ paychecks, but did not return. The next day, plaintiffs emailed Boice formally requesting payment for their unpaid wages and for their unpaid tax withholdings and stated that if Trustify did not do so, they would make a complaint to the Virginia Labor Board. On November 19, plaintiffs asked Boice about their paychecks and he became angry and threatening and told them to leave. Days later, on November 26, Boice terminated plaintiffs by email.
Plaintiffs brought claims against Trustify and Boice for violations under the FLSA for unpaid minimum wages and retaliation, as well as breach of contract for failing to pay plaintiffs as agreed in their employment contracts.
To establish a claim for non-payment of minimum wage under the FLSA, a plaintiff must show that (1) the plaintiff was employed by the defendant, (2) the plaintiff was engaged in interstate commerce or in the production of goods for interstate commerce, (3) the plaintiff was not compensated for all hours worked during each workweek at a rate equal to or greater than the applicable minimum wage, and (4) no exemptions apply. Under the FLSA, “employer” is “any person acting directly or indirectly in the interest of an employer in relation to an employee.” An individual corporate officer may be subject to liability in his individual capacity “if he acts as a supervisor with sufficient control over the conditions and terms of the plaintiff’s employment.”
The court found that both defendants Trustify and Boice are employers under the FLSA since plaintiffs had employment contracts with Trustify and worked for the company. Additionally, Boice was the Founder and CEO of Trustify and exercised sufficient control over plaintiffs’ employment “because he oversaw and evaluated their job duties; made or delegated the decision to hire them; set and determined their job duties and responsibilities, and rate and method of payment; set, controlled, and monitored their work schedule; maintained or caused to be maintained all work and employment records relating to them; and had full authority to fire them, which he clearly exercised.”
Next, since Trustify employed plaintiffs in Virginia and connected customers with private investigators in states outside of Virginia and had annual gross business done not less than $500,000, it was engaged in interstate commerce. Third, plaintiffs established they were not paid any wages for the work they performed between November 1 and November 19, 2018. Lastly, the court found no exemptions apply, since plaintiffs weren’t paid at all for the relevant period, and thus couldn’t satisfy the salary requirements for an exemption to apply. Thus, the court found that defendants violated the FLSA for non-payment of minimum wages to plaintiffs.
To establish a claim of retaliation under the FLSA, a plaintiff must show that (1) he engaged in an activity protected by the FLSA; (2) he suffered an adverse action by the employer subsequent to or contemporaneous with the protected activity; and (3) a casual connection exists between his protected activity and the adverse employment action. A plaintiff engages in FLSA-protected activity when he raises a complaint that is “sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the [FLSA] and a call for their protection.”
Here, the court found the plaintiffs engaged in protected activity by collectively emailing defendants and requesting that they pay plaintiffs’ wages or they would make a complaint to the Labor Board. The court determined that plaintiffs’ actions “clearly constitute protected activity because a reasonable employer would understand such action as an assertion of their right to be paid for their work under the FLSA.” Plaintiffs suffered an adverse action by being sent home the day they demanded payment and being terminated. The court found a casual connection between plaintiffs demanding payment for their work and being sent home and terminated, since “the several days gap between plaintiffs’ protected activity and the adverse action is sufficient evidence of causation.” Since plaintiffs established the requirements of a retaliation claim, the court found that defendants violated the FLSA for retaliation.
Breach of Contract and Damages
To make a successful breach of contract claim in Virginia, the plaintiffs must show: (1) a legally enforceable obligation; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation. The court found this claim was clearly established because plaintiffs had written employment contracts with Trustify; Trustify breached its obligation to pay plaintiffs for work; and plaintiffs suffered lost wages due to the breach.
The court also found that Boice was individually liable to plaintiffs for Trustify’s breach of contract since the corporate veil was pierced. In Virginia, a court may pierce the corporate veil if (1) there is unity of interest and ownership between the individual and the corporation and (2) that the individual used the corporate form to evade personal jurisdiction, to perpetrate fraud or a crime, to commit an injustice, or to gain an unfair advantage. A unity of interest and ownership may be established based on comingling of personal and corporate funds and undercapitalizing the business. Here, Boice commingled Trustify’s funds with personal funds, used Trustify’s assets to pay for his personal expenses, and undercapitalized Trustify so that it was unable to pay its employees or vendors. Additionally, Boice used the corporate form “to commit an injustice by failing to pay his employees’ wages so that such funds could be used for personal reasons.”
As a result of defendants’ FLSA violations and breach of contract, the court found plaintiffs were entitled to damages totaling $259,425.49. Each plaintiff was entitled to unpaid wages for time worked, lost wages resulting from defendants’ retaliation, and liquidated damages. The court also granted plaintiffs attorneys’ fees and costs totaling $17,484.
What Does Scott v. Trustify Inc. Mean for Employers?
Here, the court found that defendants violated the FLSA and breached contracts with plaintiffs, resulting in substantial damages. While the case here seemed pretty clear cut against defendants, one notable finding was that Boice, as founder and CEO, was found personally liable. Business owners should be aware that an individual corporate officer may be subject to liability under the FLSA in his individual capacity “if he acts as a supervisor with sufficient control over the conditions and terms of the plaintiff’s employment.” This case also showcases the danger of treating your business as your “alter ego” which allows the court to pierce the corporate veil.
Here, the court decided to pierce Trustify’s corporate veil, because Boice commingled Trustify’s funds with his own, used Trustify’s funds to pay for personal expenses, and undercapitalized Trustify so it wasn’t able to pay employees or vendors. A court will also consider whether the entity observed corporate formalities. A key take away from this case for business owners should be the importance of keeping corporate funds separate from personal funds and not using corporate funds to pay for personal expenses. Commingling and personal use of corporate funds may allow a court to pierce the corporate veil and hold business owners personally liable for damages owed by the business.
If you need more guidance or information, contact the employment law experts at General Counsel, PC today at 703-991-7973. Attorneys at General Counsel, PC are specialized in labor and employment law and have experience working with business owners and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William.