Board Members Not “Employers” Under Virginia Wage Law

Eric Paltell
Eric Paltell
11/03/2022

 On October 13, 2022, the Supreme Court of Virginia held that a company’s board members are not “employers” who can be held liable for unpaid wages under Virginia Code Section 40.1-29(j). Cornell, et. al. v. Benedict, et.al. (No. 210934). In so holding, the Court ruled that the statute’s definition of employer is more narrow than that used in the Fair Labor Standards Act or the Virginia Minimum Wage Act. 

The appellants worked as  therapists at Christian Psychotherapy Services (‘CSP”) in Virginia Beach, Chesapeake, Suffolk, and Newport News.  They were paid commissions equal to a percentage of collected receivables for counseling and therapy services they provided.  In 2020, CSP was plagued by financial difficulties, and on January 11, 2021, it terminated the employment of its therapists. CSP failed to pay them wages that were due on January 19, 2021.

The therapists filed a collective action for unpaid wages in the Circuit Court for Virginia Beach. Named as defendants in the lawsuit were CSP and two of  the members of its Board of Directors. Plaintiffs argued that the two directors were jointly and severally liable  with CPS.

In response, the two directors filed demurrers and pleas in bar, arguing that they were not employers under Code Section 40.1-29(j).  The court conducted hearings and the parties presented evidence ore tenus on the pleas in bar.  Although the Circuit Court overruled the demurrers, it granted the pleas in bar.

On appeal, the Supreme Court affirmed the Circuit Court, ruling that the definition of employer in Code Section 40.1-2 is substantially different that that used in the FLSA because it refers to a “person” as opposed to an “entity.”  Specifically, while 29 U.S.C. Section 203(d) defines an employer as “any person acting directly or indirectly in the interest of the employer in relation to an employee,” Section 40.1-2 states: 

“Employer” means an individual, partnership, association, corporation, legal representative, receiver, trustee, or trustee in bankruptcy doing business in or operating within this Commonwealth who employs another to work for wages, salaries, or on commission and shall include any similar entity acting directly or indirectly in the interest of an employer in relation to an employee (emphasis added).

The Court took note of the fact that, in defining “employer” under the Virginia Minimum Wage Act (Va. Code Section 40.1-28.9(A)), the General Assembly expressly incorporated the definition of employer from the FLSA. Because the General Assembly did not use that definition in Section 40.1-2, the Court concluded that it deliberately chose to omit individuals from joint liability for unpaid wages under the Code. As stated by the Court, “[i]f the General Assembly had wanted to adopt the FLSA definition of “employer” in Code Section 40.1-2, it has demonstrated it well knew how to do so.”

The Supreme Court’s decision in Cornell is a significant development in Virginia Wage and Hour law.  Given that claims for unpaid wages often arise when an employer becomes insolvent, the fact that individual owners and board members cannot be held jointly liable creates another hurdle for employees seeking to recover these wages. 

 

 

 

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