Taking The Fall
From owners to officers, sweeping lawsuits are bringing down entire companies. Exactly who's liable? Courts are divided.
Employees who believe their legal rights have been violated at
work often sue for damages in comprehensive lawsuits that name the
company, its owners and officers, and the supervisors involved. But
can owners officers and supervisors be held liable as individuals
under federal and state employment laws? That depends on which law
the employee sues under and how the courts interpret its
language.
In such laws as the Americans With Disabilities Act (ADA), the
Fair Labor Standards Act (FLSA) and Title VII of the Civil Rights
Act of 1964, Congress made clear that an employer--meaning
company--is liable for violations. It's a long-standing legal
principle that a business is responsible for the wrongdoing of
those acting on its behalf, provided they're operating within
the scope of their employment.
What's not clear, according to federal laws, is whether
small-business owners are personally liable for the wrongdoing of
their managers, and whether the managers whose decisions supposedly
broke the law can be made to pay relevant fines out of their own
pockets. State employment laws are often no clearer. In a typical
lawsuit, the individuals named have to go to court to get their
names removed from the lawsuit, and the court has to examine the
wording of the law and how previous courts have interpreted it
before deciding whether or not to dismiss the individuals from the
lawsuit. Only then can the lawsuit proceed to trial.
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Michael D. Karpeles, head of the employment law department at
Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz Ltd. in
Chicago, says plaintiffs typically name individuals in hopes of
tapping other deep pockets, since the owner or manager may have
insurance to cover a judgment. They may also be angry enough with
the person whom they believe treated them poorly that they want to
get even. Naming individuals can also be a strategic move for
plaintiffs hoping to garner a lucrative settlement. Owners or
managers who are losing sleep over the prospect of having their
personal assets drained may push the company to settle the
lawsuit--by paying off the plaintiffs and releasing the individuals
from liability.
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