In a recent case, the Supreme Court of Virginia answered the question of whether joint employer liability for unpaid wages can be imposed upon individuals who act directly or indirectly in the interest of an employer in relation to an employee. There, employees filed a claim for unpaid wages against two former board members, in their individual capacities, arguing they were “employers” under the Virginia Wage Payment Act (“VWPA”) and were jointly and severally liable for their unpaid wages. However, the court ultimately determined that they were not liable, finding an individual can’t be personally liable under the VWPA as an “employer” for acting directly or indirectly in the interest of an employer.

Cornell v. Benedict

In Cornell v. Benedict, Christian Psychotherapy Services (“CPS”), founded by Dr. Page Huff, operated a counseling and psychotherapy practice in Virginia. The Clinicians were licensed therapists employed by CPS and were paid commissions equal to a percentage of collected receivables for counseling and therapy services. After Dr. Huff died in August 2020, CPS hired Touchstone Business Solutions, LLC (“Touchstone”) as a “turnaround consultant” because CPS was in serious financial trouble. A Board of Directors (the “Board”) was established and took over management of CPS in October 2020. Jason Benedict worked for Touchstone and joined the Board, as acting president, from October 23, 2020 until January 11, 2021, when he resigned from CPS. Cheryl Ludvik worked as a clinical social worker at CPS and joined the Board as chairperson and treasurer until her resignation on January 8, 2021.

To cut costs, on January 8, 2021, the Board decided to reduce the Clinicians’ commissions by 30% on paychecks scheduled to be paid on January 19. However, none of the Clinicians received wages due them on January 19, 2021. On February 17, 2021, Ashley Cornell and Kendall Sparks sued on behalf of themselves and the other Clinicians for unpaid wages. They alleged that CPS, Benedict, and Ludvik had knowingly withheld wages earned by the Clinicians. The Clinicians argued that Benedict and Ludvik should be considered employers who were liable, jointly and severally, with CPS, for the unpaid wages, pursuant to Code § 40.1-29(J) (the VWPA), because of their actions directly or indirectly in the interest of CPS in relation to the Clinicians. Benedict and Ludvik filed pleas in bar, arguing that they were not employers, as that term is used in Code § 40.1-29(J). The circuit court granted defendants’ plea in bar, barring the Clinicians claims, and the Clinicians appealed.

The Clinicians argued the definition of “employer” found in the VWPA includes individuals, like Benedict and Ludvik, acting directly or indirectly in the interest of an employer in relation to an employee. The Clinicians’ argument relies on the idea that the definition of “employer” in the VWPA tracks the definition of “employer” in the Fair Labor Standards Act (“FLSA”) and confers joint employer liability on individuals similar to federal law.[1] However, Benedict and Ludvik argued that the VWPA utilizes a narrower definition of “employer” than that used in the FLSA and excludes individuals from joint employer liability.

The court here disagreed with the Clinicians’ argument, that the definition of “employer” in the VWPA mirrors the definition found in the FLSA. The court emphasized the “conspicuous difference in statutory language” prominent in Code § 40.1-2 of the VWPA and the FLSA. The FLSA defines “employer” as “includ[ing] any person acting directly or indirectly in the interest of an employer in relation to an employee.” Code § 40.1-2 defines “employer” as “an individual, partnership, association, corporation, legal representative, receiver, trustee, or trustee in bankruptcy doing business in or operating within this Commonwealth who employs another to work for wages, salaries, or on commission and shall include any similar entity acting directly or indirectly in the interest of an employer in relation to an employee.” The court here determined that the decision not to adopt the FLSA definition of “employer” as a whole represents “a conscious decision with deliberate implications.”

“Entity,” is defined as “an organization (such as a business or governmental unit) that has a legal identity apart from its members or owners.” The court concluded that the choice to use the word “entity,” rather than “person” shows an intention to omit individuals from joint employer liability for unpaid wages under Code § 40.1-29(J) by using a narrower definition of “employer” than in the FLSA. Thus, because Code § 40.1-29(J) does not contemplate joint employer liability for individuals like Benedict and Ludvik, the court here found the circuit court did not err in sustaining their pleas in bar. Since individuals are excluded from implied employer liability under Code § 40.1-29(J), the claims against Benedict and Ludvik are barred.

Takeaways

Here, the Supreme Court of Virginia offered clarification on who is an “employer” under the Virginia Wage Payment Act. While federal law, under the Fair Labor Standards Act, may confer implied employer liability on an individual, the court here concluded that the VWPA does not similarly allow for personal liability of an individual as an “employer.” However, while this is the rule under Virginia law, some states do allow personal liability on individuals for similar wage claims. Employers with businesses in other states should keep up to date on relevant regulations wherever they do business.

If you need more guidance or information, contact the employment law experts at General Counsel, PC today at 703-556-0411, email us at intake@gcpc.com, or use this Contact Us Form. Attorneys at General Counsel, PC are specialized in labor and employment law and have experience working with business owners and individuals throughout the Washington, D.C. Metro Area (and beyond).

[1] Under the Fair Labor Standards Act (“FLSA”) individuals with sufficient control over employment relationship and decisions can be liable for FLSA damages.  See https://www.generalcounsellaw.com/business-and-business-owner-liable-for-flsa-and-breach-of-contract-damages/ and https://www.generalcounsellaw.com/company-and-company-owner-liable-for-flsa-violations-workers-not-independent-contractors/.