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Unpaid Employee Wages Are Not Lost in Business Bankruptcies

When the sun goes down on February 17, 2012, Hooters wings will hopefully begin to sizzle under a more financially sound and responsible management when the Las Vegas Hooters Hotel goes on the auction block. Filing for bankruptcy protection last August, Hooters’ hotel owners claimed the 5-year-old $80 million property was $181 million in debt due to overbearing mortgage payments in a sluggish economy. The hotel owners and their largest creditor, Canpartners Realty Holding Co. IV who owns $178 million of the property’s debt, have agreed on a settlement to sell the 696-room Las Vegas property at auction. But for the many employees at the Las Vegas Hooters and other Las Vegas hotels, a hotel bankruptcy always brings up to them the question … “Will I get paid?” If a Las Vegas hotel owes its employees unpaid wages, will these unpaid wages be discharged or settled in a bankruptcy filing?

Under the Federal Labor Standards Act (FLSA), employers, including Las Vegas employers, are required to pay their employees all wages earned and are liable for any unpaid wages. Further, Section 507 of the Bankruptcy Code states that persons owed “wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual have an allowed unsecured claim but only for wages, salaries, or commissions earned within the earlier of 180 days before the bankruptcy filing or the cessation of the debtor’s business, and only to the extent of $ 10,950 for each individual or corporation.” But if the Las Vegas employer has absolutely no assets or funds to pay unpaid wages, are their Las Vegas employees left hanging?

Maybe not! Under Boucher v Shaw, 572 F. 3d 1087 – Court of Appeals, 9th Circuit, 2009, the court gave “further protection” to Las Vegas employees owed unpaid wages.

In Boucher the Castaways Hotel Casino and Bowling Center filed a Chapter 11 bankruptcy. Part of the debt owed by the Hotel Casino at the time of filing was unpaid wages to several employees. With no assets or funds to satisfy their unpaid wages, several Castaways employees filed a class action lawsuit against three of the Castaways executives – the Chief Executive Officer, the Labor Relations Manager, and the Chief Financial Officer.

The federal district court in Nevada ruled that neither Nevada state law nor the FLSA made a company’s executives liable for unpaid wages and dismissed the case. The 9th Circuit Court of Appeals disagreed holding that the FLSA definition of an “employer” should be “given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes.” If executives exercised economic (the CEO and Manager owned 70% and 30% of the Castaways’ stock, respectively.) or key control over the employment relation an executive could be liable for unpaid wages owed to a Las Vegas employee and not satisfied in a bankruptcy settlement.

The commentary is for educational and commentary purposes only. If you or someone you know are owed unpaid wages, salaries, or commission, and would like to be represented by a Nevada attorney, contact our office for a free confidential case review and receive a response within hours. Call Toll Free 866-414-0400.