Business owners, managers, and supervisors: Do your employment agreements shield you from class action employment claims?

According to the source of all knowledge – Google – individual liability exists when a person (like you) is legally responsible for his or her own conduct, debts, or obligations.

That means your individual bank account and other assets could be seized if your actions, or failures to act, violate the law and cause injury to others.

Normally, a corporate employer is liable for the wrongs committed against employees by individuals acting on the employer’s behalf. That typically includes the company’s owners, managers, and supervisors.

But did you know that many federal and state employment laws also subject owners of businesses, along with their managers and supervisors, to individual liability?

Included among these laws are the Fair Labor Standards Act, the Family and Medical Leave Act, the Civil Rights Act of 1991, and numerous state employment discrimination and wage protection laws.

These exposures are not limited to your affirmative misconduct. They can include lesser conduct like aiding, abetting, or failing to stop a bad actor.

Depending on the facts and circumstances, liability for the employment-related claims of just one employee can be substantial. But it goes nuclear when the claim is asserted on behalf of a class of employees.

If you think your arbitration and class action waiver agreements protect you from this potentially devastating consequence, you better check its language.

Just ask Kristina Petrosius, the founder, owner and president of ASAP Trans Corp. in Illinois.

Owner and president gets burned

Sam Malone and Donald Brown are former truck drivers of ASAP Trans Corp. In 2022, they filed a class action lawsuit against the company and Kristina Petrosius, the owner and president, alleging violations of the federal Truth in Lending Act and the Illinois Wage Payment and Collection Act.

The lawsuit alleged that Ms. Petrosius was aware of and encouraged ASAP’s alleged scheme to violate these laws.

After several years of contentious and, no doubt, costly litigation, the plaintiffs moved to certify their claims as being suitable for resolution on a class-wide basis. If successful, hundreds of current and former ASAP drivers would need to be notified that they were part of the class.

In response, ASAP and Ms. Petrosius claimed that the plaintiffs were not adequate class representatives because, unlike many of the members of the proposed classes, neither one had signed a contract with ASAP requiring arbitration of disputes and a waiver of the right to file a class action.

The court agreed and, after excluding all of the individuals who signed arbitration and class action waiver agreements, there were too few individuals remaining to satisfy the “numerosity” requirement for a class action.

Good news for ASAP. But, as for Ms. Petrosius, the court stated, “whether the arbitration and class action waiver provisions prevent Plaintiffs from representing putative class members in their claims against [Ms. Petrosius] depends on whether those provisions apply to claims against [her] in the first place.”

Spoiler Alert: They did not.

According to the court, “none of the four types of contracts at issue designate ASAP’s officers, directors, or agents as third-party beneficiaries who would be entitled to enforce the arbitration or class-waiver provisions.”

That meant Ms. Petrosius as an individual could not enforce the arbitration and class action waiver provisions of the driver contracts.

With that, the walls of defense came tumbling down for Ms. Petrosius. The court found that the class claims were susceptible to being proven with common evidence and the 450+ current and former employees included in the proposed classes easily satisfied the “numerosity” requirement for certification.

In short, ASAP was out, and Ms. Petrosius was left holding the bag on the class claims.

I’ll bet that could cause some sleepless nights in the weeks and months ahead.

Do the right thing

In what could be considered a “duh,” if you do the right thing, the odds are pretty good that you will never have to drain your bank account to pay a judgment for violating a federal or state employment or wage protection law.

If you train your managers and supervisors to do the same, they too should have a good chance of avoiding personal disaster.

But bad things can happen to good people. Including having to defend themselves in expensive litigation in locations where juries are sympathetic to employees and hostile toward employers.

Arbitration and class action waiver agreements are among the tools available to employers to protect against these dangers.

But like most things contractual in nature, the devil is in the details and that means the terms of the agreement.  

Don’t be like Kristina

If you require employees to sign arbitration agreements and class action waivers, when is the last time you looked at them?

Do they clearly extend to your owners, officers, directors, managers, supervisors, and agents?

If not, fixing it now will be a minor cost that will pale in significance when compared to the potential consequences of not fixing it.

I’ll bet Ms. Petrosius is wishing she had those few additional words in her company’s agreements with drivers.