Potential for Individual Liability in Employment Claims

Many business owners, officers and managers incorrectly believe that corporate formation will automatically protect them from personal liability in employment litigation. They think that the only possible defendant in an employment claim will be the employer. This is incorrect. While doing business as a corporate entity protects individuals from many claims filed by current and former employees, it is not a complete shield from all liability. Plaintiffs name supervisors and human resources professionals as individual defendants in a variety of employment-related matters.   

Wage claims at the state and federal level provide for personal liability. In the event a company fails to make payroll, the federal Fair Labor Standards Act and the NH wage statute allow certain officers can be held directly responsible for the payment of wages to employees. That means they may have to make up past due wages with their personal funds.  

Likewise, at the federal level, supervisors may have personal liability in federal Family Medical Leave Act (FMLA) interference claims. Such claims generally arise when an individual is terminated from employment either during an FMLA leave or immediately following a request for FMLA leave. The basis for this claim is usually that a supervisory employee was personally involved with the decision-making that resulted in the termination of the employee and the violation of the employee’s FMLA rights.

Many state laws also provide for individual liability in discrimination or harassment claims. The basis for these claims is that a particular individual “aided and abetted” the alleged discrimination or harassment. In 2016, the NH Supreme Court held in the case of U.S. Equal Employment Opportunity Commission v. Fred Fuller Oil Company Inc. that an individual can be personally liable for unlawful employment discrimination if the individual aided and abetted the unlawful discriminatory practice committed by the employer. This claim can be used against supervisors, owners and human resources professionals.

For example, one recent case in NH involved a claim filed by a grocery store employee against his store manager alleging that the store manager was personally liable for his involvement with the unlawful decision-making that resulted in the plaintiff’s loss of employment based on age discrimination.   

Of related interest, in a recent shareholder derivative action, a Delaware court ruled in McDonald’s Corporation Stockholder Derivative Litigation that non-director corporate officers have a “duty of oversight” to the corporation. This means individual officers may have personal liability if they neglect to report and address credible information that the company may be violating the law.

Officers must also make good faith efforts to establish information systems to effectuate this reporting. In the McDonald’s case, the court found that the human resources professional may have personal liability to shareholders for exercising inadequate oversight in response to risks of sexual harassment and misconduct at the company.

In addition to statutorily based claims against individuals, there are also common-law claims that may arise. One such common-law claim is defamation. To state a claim of defamation under NH law, a plaintiff must allege facts that show the defendant failed to exercise reasonable care in publishing a false and defamatory statement of fact about the plaintiff to a third party that was not privileged. Workplace-related defamation claims frequently arise in connection with job reference phone calls, performance evaluations or during workplace investigations.   

Other common-law claims resulting in personal liability in the workplace include tortious interference with contractual relationships, civil conspiracy and intentional infliction of emotional distress. These claims are tied to decision-making or conduct in the workplace that a current or former employee alleges caused them harm.   

The key takeaway for owners, managers and HR directors is to be cognizant of the different laws and claims, and to adopt policies and training to ensure the company is compliant. All companies should ensure their employee handbook accurately reflects the applicable wage and hour requirements, leave laws and laws prohibiting discrimination and harassment.  

In addition, companies should ensure those employees with termination authority are well educated on the areas of litigation risk. Companies should consider harassment and discrimination trainings for all supervisory employees, as well as non-supervisory employees. It is not safe to assume your employees know these specific rules of conduct for the workplace.  Companies should also have a robust and effective reporting process for all unlawful conduct, including discrimination and harassment, and must take steps to educate employees how to report concerns. These trainings may also act as a defense in the event of a discrimination or harassment lawsuit.

Peg O’Brien is a director at McLane Middleton and a member of the firm’s Employment Law Practice Group. She can be reached at 603-628-1490 or margaret.obrien@mclane.com.