Employee Wins Cross-Country Wage War Against CEO

| Jason M. Knott

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The Supreme Court of Washington’s recent decision in Failla v. FixtureOne Corporation is noteworthy on two levels.

First, it involved the surprising claim by a salesperson, Kristine Failla, that the CEO of her employer (FixtureOne) was personally liable for failing to pay her sales commissions.  Typically, if an employee had a claim for unpaid commissions, you’d expect the employee to assert that claim against her company, not the chief.  But under the wage laws of the state of Washington, an employee has a cause of action against “[a]ny employer or officer, vice principal or agent of any employer ... who ... [w]ilfully and with intent to deprive the employee of any part of his or her wages, [pays] any employee a lower wage than the wage such employer is obligated to pay such employee by any statute, ordinance, or contract.” 

In Failla’s case, the CEO (Kenneth Schutz) was her primary contact.  After FixtureOne went belly-up, Schutz assured her that it would pay her commissions as soon as possible.  But then he returned her requests for payment, offering various excuses, and finally told her she wouldn’t be paid, disputing whether she was owed anything at all.  Under the Washington state wage law, this was enough to permit liability – without a trial.  Schutz argued that he did not have power over FixtureOne’s finances (such that he couldn’t “willfully” decide not to pay), but the court found that he had “admitted his fiscal authority.”  Because he had the ability to pay Failla but willfully withheld payment, he was liable.

Second, the court held that it could exercise jurisdiction over Schutz across the country even though he lived and worked in Pennsylvania.  Under the United States Constitution, state courts are only allowed to assert jurisdiction over parties if they have sufficient contacts with the state.  See, e.g., Burger King Co. v. Rudzewicz, 471 U.S. 462 (1985).  Thus, if you live in Virginia, drive down your home street, and crash your car into someone from Montana, the Montana resident typically shouldn’t be able to go back home and sue you for damages there. 

In the Failla case, Schutz argued that he had never been to Washington.  Further, he said, in interviewing and hiring Failla and later denying her pay, he acted only as an officer of FixtureOne, such that he couldn’t personally be dragged to court on the West Coast.  But the court disagreed, holding that because Schutz hired Failla, controlled her payments, and had exclusive contact with her, he had established sufficient contact with the Washington resident to allow her to sue him in her home state court.

The Failla decision suggests a couple of pointers.  First, companies that do business in states with statutes like Washington’s should examine their employment practices policies to make sure that they cover these kinds of wage claims against officers and directors, and organize those policies for easy reference.  Second, a company and its officers may try to shield themselves from long-arm jurisdiction in faraway courts by adopting employment agreements that include exclusive forum selection or arbitration clauses. 

Another alternative is to limit contact with the employee in the home state.  It didn’t work for Schutz – who was successfully sued in Washington even though the plaintiff contacted him in Pennsylvania, flew to Pennsylvania for her interview, and did not conduct any business in Washington.  But in a state with a more limited approach to its own jurisdiction, staying out of the state might save you from defending a case there.