Defining an “Employer” Under the Delaware Wage Payment Act

money_fallingThe Delaware Wage Payment and Collection Act (“DWPCA”), is the state equivalent of the federal Fair Labor Standards Act (“FLSA”). Both the Delaware statute and the FLSA provide for individual liability for unpaid wages. In other words, an individual can be sued personally if he knowingly permitted a violation of the wage statute.  19 Del. C. Sec. 1101(b) states:

The officers of a corporation and any agents having the management thereof who knowingly permit the corporation to violate this chapter shall be deemed to be the employers of the employees of the corporation.

The Delaware Court of Common Pleas was recently asked to interpret the definition of “employer,” for the purposes of individual liability, leading to an interesting and potentially important result.

In Chasnov v. Brady, No. CPU4-09-8966 (Del. CCP Mar. 23, 2010), the Delaware Department of Labor sued two lawyers on behalf of their former law partner, Chasnov.  Chasnov was ordered to step down as a member of their law firm by the Office of Disciplinary Counsel but he continued to practice with the firm.  He alleged that he was not paid the full amount of fees he was owed.

The Department of Labor brought the suit on Chasanov’s behalf to recover the fees he claimed were due. The suit was brought only against the two partners–not against the law firm–based on the provision of the statute cited above.

The partner-defendants moved to dismiss the suit on the ground that the Wage Payment Act does not impose individual liability on members and managers of an LLC.  Instead, they argued, the Wage Payment Act creates liability only for officers and agents of a corporation who knowingly permit the corporation to violate the Act. An LLC is not the same as a corporation and, therefore, members and managers of an LLC cannot be held individually liable for unpaid wages under state law.

The Court agreed with the defendants’ argument, finding that the members and managers of a Limited Liability cannot be held personally liable under the state Wage Payment Act.

This is an important decision for employers in Delaware–especially those who operate an entity other than a corporation.  The decision supports a very narrow interpretation of who can be an “employer” for the purposes of individual liability under the Delaware Wage Payment Collection Act–a definition more narrow than the definition of “employer” under the federal Fair Labor Standards Act.