In Boucher v. Shaw, the Ninth Circuit Court of Appeals held that managers could be sued under the Fair Labor Standards Act even though the corporation had filed for bankruptcy protection.  In Boucher, former employees and their union filed a class action against three managers after The Castaways Hotel, Casino and Bowling Center filed for bankruptcy protection.  The employees sought unpaid wages under Nevada law and the FLSA.

The district court determined that the managers were not “employers” under Nevada law, that the union lacked standing to sue under Nevada law, and that the employees could not maintain a cause of action under the FLSA.

On appeal the Ninth Circuit reversed in part and affirmed in part, holding that the managers could be sued under the FLSA even though the corporation had filed for bankruptcy protection.  The Ninth Circuit asked the Nevada Supreme Court to decide the question whether the individual managers could be held to be employers under Nev. Rev. Stats. Chapter 608 and the Nevada Supreme Court held that the individual managers could not be found liable as “employers” under the state statutes.

The Ninth Circuit then turned to the definition of "employer" under the FLSA. The Ninth Circuit previously held that the definition of “employer” under the FLSA is not limited by the common law concept of “employer” but is to be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes. Where an individual exercises “control over the nature and structure of the employment relationship,” or “economic control” over the relationship, that individual is an employer within the meaning of the FLSA and is subject to liability.

Interestingly, the managers in Boucher did not argue that they were not employers.  Instead, they argued that the corporation's Chpater 7 bankruptcy discharged any obligation the individual managers might have to pay the wages. The Ninth Circuit disagreed.  Since the managers were not parites in the bankruptcy proceeding, the automatic stay was not applicable to them. Looking at prior case law regarding guarantors, sureties and other non-debtor parties who are liable for the debts of the debtor allowed the Ninth Circuit to conclude that the coporation's bankruptcy had no effect on the claims against the individual managers.

The court posited at least one scenario where the plaintiff employees could have been forced to proceed in bankruptcy court (such as when there is a requirement that the bankrutping debtor indemnify the non-debtor or by payment of the liability from an officers’ and directors’ insurance policy), but neither side raised that argument.

Boucher v. Shaw presents another situation where corporations and the individuals that run the corporations must carefully consider all available options before filing bankruptcy.