The definition of “employer” applicable to actions under Code § 40.1-29(J) for unpaid wages is narrower than the definition in the Virginia Minimum Wage Act, or VMWA, and the Fair Labor Standards Act, the Supreme Court of Virginia has held.
The plaintiffs sued for unpaid wages and named two members of their former employer’s board of directors as defendants, arguing that they were jointly and severally liable because of actions taken in the interest of their employer.
But the court agreed with the defendants that the statute at issue “utilizes a narrower definition of ‘employer’ than that used in the FLSA, and it excludes individuals from joint employer liability under Code § 40.1-29(J) based upon actions they undertake on behalf of an actual employer.”
Chief Justice S. Bernard Goodwyn authored the opinion in Cornell, et al. v. Benedict, et al., (VLW 022-6-046).
Ashley Cornell and Kendall Sparks are licensed therapists who worked for Christian Psychotherapy Services. They were paid a percentage of their collected receivables as commissions.
After Christian Psychotherapy’s founder died in August 2020, the company suffered a financial downturn and hired Touchstone Business Solutions as a “turnaround consultant.” Touchstone formed a board of directors and took over Christian Psychotherapy’s management.
Jason Benedict, a Touchstone employee, joined the company’s board and served as acting president from October 2020 until January 2021. Cheryl Ludvik served as director of operations and, later, on the board as chairperson and treasurer until she left in January 2021.
The board voted to reduce the percentage of commissions paid to employees in December 2020. In January 2021, the board decided to declare bankruptcy and reduce commissions again. The next day, Christian Psychotherapy laid off all its employees, effective immediately.
Benedict worked on the mid-January 2021 payroll, but he then resigned from the board and Touchstone ended its agreement with the defendant.
The plaintiffs never received their commissions.
Cornell and Sparks then sued on behalf of themselves and other clinicians to recover their unpaid commissions.
In the complaint, the plaintiffs said that Benedict and Ludvik should be considered as employers who were jointly and severally liable with Christian Psychotherapy for the unpaid wages pursuant to Code § 40.1-29(J), because of their actions in the interest of the company in relation to the clinicians.
But Benedict and Ludvik argued they were not employers under the statute and that their resignations before the wages were withheld constituted an absolute bar to recovery.
The circuit court sided with the defendants.
The circuit judge said the plaintiff’s argument for adopting the “economic reality” test used in FLSA cases would be “more persuasive if this were a case under [the VMWA], as that definition of employer seems more closely aligned with the FLSA.”
But “even under that test, Benedict and Ludvik have not been proven to be the joint employers of the Clinicians,” the lower court noted. Instead, all decisions about withholding wages were made by the board.
The plaintiffs appealed.
‘Person’ and ‘entity’
Code § 40.1-29(J) allows for collective action to recover unpaid wages. On appeal, the plaintiffs argued that definition of “employer” in that statute tracks the definition used in the FLSA and imposes joint liability on individual managers.
?Benedict and Ludvik countered that the statute uses a narrower definition of “employer” than that used in the FLSA.
The Supreme Court of Virginia agreed.
“The Clinicians’ argument, that the definition of “employer” in Code § 40.1-2 mirrors the definition found in the FLSA, must confront the conspicuous difference in statutory language prominent in those two statutes,” Goodwyn wrote. “Congress, in enacting the FLSA, defines ‘employer’ as ‘include[ing] any person acting directly or indirectly in the interest of an employer in relation to an employee.’”
The justice pointed out this is different from the definition applied under § 40.1-29(J), which says that “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.”
“Our canons of statutory construction presume that the General Assembly’s decision not to adopt the FLSA definition of ‘employer’ as a whole represents a conscious decision with deliberate implications,” Goodwyn wrote. “This presumption becomes stronger when we consider that the General Assembly did in fact adopt the FLSA’s choice of the word ‘person’ over ‘entity’ in one closely related statute, and it expressly incorporated the FLSA definition by reference in another.”
The court then looked to Black’s Law Dictionary for definitions of “person” and entity.” A person, in part, is “‘a human being; … an entity (such as a corporation) that is recognized by law as having most of the rights and duties of a human being,’” while an entity is “an organization (such as a business or governmental unit) that has a legal identity apart from its members or owners.’”
Goodwyn said, “It follows from a comparison of these two definitions that an entity is to a person what a square is to a quadrangle: entities may be persons, but not all persons are entities.”
Finding no reference to natural persons or individuals in the legal definition of entity, Goodwyn concluded “from this distinction in plain meaning that the General Assembly intended to omit individuals from joint employer liability for unpaid wages under Code § 40.1-29(J) by using a narrower definition of ‘employer’ than did Congress in the FLSA.”
As a result, the plaintiffs could not hold Benedict and Ludvik liable.
Norfolk attorney James Theuer, who represented the plaintiffs, told Virginia Lawyers Weekly he was disappointed by the outcome.
He thought it was settled that individuals could be liable under the VWPA since the Virginia Supreme Court’s 1976 decision in Makarov v. Commonwealth, which held that imprisonment penalties under the VWPA were unconstitutional and cited a definition of employer which included “individual.”
According to Theuer, the Virginia Department of Labor and Industry, or DLI, has also taken that position for the last 45 years.
“It would have been helpful for the court to explain why the DLI and Makarov were wrong,” he said.
Chesapeake attorney Christopher Davis, who represented Benedict, said a ruling for the plaintiff “could have had radical implications.”
“The plaintiffs argued that Makarov controlled but the judges recognized that holding didn’t address individual liability,” he said.