Taking The Fall

Other federal employment laws are usually interpreted to allow individual liability. These include the Family and Medical Leave Act (FMLA) and the FLSA, which governs such matters as payment of overtime. These laws use a definition of "employer" that more clearly includes personal liability because it includes "any person who acts, directly or indirectly, in the interest of an employer." That means anyone who was capable of exercising supervisory authority over the plaintiff and who was to some degree responsible for the violation could be left in the lawsuit and found personally liable. For instance, a business owner who knows a key employee is entitled to leave under the FMLA but instead terminates the employee for taking leave may have to answer for it in court.

So what does all this uncertainty mean? "Business owners shouldn't think that because they have an adequately capitalized corporation, they're protected," Karpeles says. Make sure the bylaws of your company provide for indemnification of owners and officers if they're dragged into court in an employment case. Then take extra precautions to avoid these lawsuits in the first place. Make sure you have someone on staff responsible for human resources who can counsel you and your supervisors on the legal side of employment decisions. Be evenhanded in discipline, and keep thorough records of any disciplinary actions. Even if individual owners and supervisors aren't liable, you still don't want to have to defend your company against an employment lawsuit.

This article was originally published in the June 1999 print edition of Entrepreneur with the headline: Taking The Fall.