May 26, 2026|Franchise Frontlines
May 26, 2026 | United States District Court for the Eastern District of Texas | Reported Opinion
Executive Summary
In a reported decision, Judge J. Campbell Barker of the United States District Court for the Eastern District of Texas issued an opinion explaining why he modified a proposed jury instruction addressing whether two owners of Drebco Directional, LLC could be personally liable as “joint employers” under the Fair Labor Standards Act. Plaintiffs alleged that Drebco and its owners violated the FLSA’s wage requirements, and they argued that the owners managed payroll, approved hiring and firing, directed work crews, and therefore qualified as joint employers personally liable for Drebco’s alleged wage violations. The parties proposed an economic-reality instruction based on the Fifth Circuit pattern instruction. The court gave an economic-reality instruction under existing circuit precedent, but added that the owners’ joint ownership of Drebco and joint decisions on Drebco’s behalf were not enough, standing alone, to make them FLSA employers. The jury ultimately did not reach the individual-liability issue because it found that Drebco did not violate the FLSA, but the court issued the opinion to explain the instruction and to question whether the economic-reality test should displace state-law principles governing personal liability for corporate obligations.
Relevant Background
Plaintiffs sued Drebco Directional, LLC and its two owners, Dreben “Sammy” Gearner, III and Kara Gearner, for alleged wage violations under the FLSA. Plaintiffs sought damages not only from Drebco, but also from the Gearners personally. Plaintiffs alleged that, as Drebco’s owners and officers, the Gearners managed payroll, approved hiring and firing, and directed work crews.
The case proceeded to a jury trial. At the charge conference, the parties proposed an instruction requiring the jury to decide whether plaintiffs were employees of Drebco and also employees of Sammy Gearner and Kara Gearner. The proposed instruction directed the jury to consider the economic realities of the entire relationship, including control, supervision, pay rates or method of payment, hiring and firing authority, payroll responsibility, investment in equipment and facilities, and the permanence and duration of the employment relationship. The proposed instruction tracked the Fifth Circuit civil pattern instruction.
The court gave the economic-reality instruction but added a caveat based on Fifth Circuit authority. The court instructed the jury that the fact that Sammy and Kara Gearner jointly owned Drebco or made joint decisions on Drebco’s behalf was not enough to make them employers under the FLSA. The instruction further stated that each individual had to qualify as an employer under the FLSA for each employee. The jury ultimately found that Drebco did not violate its FLSA wage and overtime obligations, so it did not reach the issue of whether either Gearner was personally liable as a joint employer.
Decision
The court issued a post-trial opinion to explain why it added the limiting language to the jury instruction and to identify a broader concern with using the economic-reality test to impose personal liability on corporate owners or officers. The court began with the premise that the FLSA issues raised two distinct questions. The first was whether a given plaintiff was an employee of Drebco or an independent contractor. The second was whether, if Drebco employed the plaintiff, Sammy or Kara Gearner also acted as a joint employer in their individual capacity and therefore could be personally liable for any FLSA violation.
The court emphasized that those questions differ materially. The first question asks whether the worker falls within the FLSA’s employment relationship. The second intersects with state statutory and common law governing limited liability, officer non-liability, agency principles, and corporate separateness. In the court’s view, the economic-reality test developed primarily to answer worker-status and joint-employment questions involving separate employing entities, not to decide whether a corporate owner or officer should be personally responsible for the corporation’s wage obligations merely because the individual acted for the company.
The court reviewed state-law principles protecting owners and officers from personal liability for corporate obligations. State law generally insulates shareholders, LLC members, and corporate officers from personal liability for corporate duties. Those protections may be pierced in exceptional circumstances, including where the corporate form is abused, used to evade legal obligations, or used to shield fraud. But absent those exceptional circumstances, officers and owners generally do not become personally liable for company obligations simply because they act through the entity. The court noted that plaintiffs did not allege alter ego or another common-law exception to ordinary corporate separateness.
The court then turned to the FLSA’s text. The statute defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The court reasoned that this language is better read as an attribution rule than as an automatic personal-liability rule. On that reading, the provision attributes the acts of those serving an employer’s interests to the employer, rather than multiplying the set of personally liable parties. The court explained that the phrase “in the interest of an employer” presupposes a separate employer whose interests are being served.
The court drew support from related statutory and doctrinal context. It compared the FLSA language to similar language in the National Labor Relations Act and Title VII. In the court’s view, similar statutory formulations have been understood as attribution rules that impose liability on the principal for the acts of its agents, not as rules creating personal liability for every agent acting on behalf of the principal. The court also observed that Title VII’s definition of employer includes an agent of the employer, but courts do not impose individual liability under Title VII on that basis.
The court then described what it viewed as drift in use of the economic-reality test. Early FLSA cases focused on whether workers were employees rather than independent contractors, or whether two economically separate entities both employed the same workers. Over time, courts began using the same multi-factor test to decide whether corporate officers or owners with operational control should be personally liable for corporate wage obligations. The court questioned that extension because many economic-reality factors overlap with the ordinary functions of corporate officers and managers, including supervising employees, approving work conditions, and participating in payroll decisions. Those factors do not necessarily address whether the corporate form has been abused or whether state-law principles justify imposing personal liability.
The court also invoked interpretive canons. It explained that federal law generally incorporates traditional state corporate-law principles unless Congress indicates otherwise. Corporate separateness and limited liability are foundational features of state law, and federal statutes ordinarily should not be read to displace those principles without a clear statement. The court reasoned that reading the FLSA to impose personal liability on officers or owners based solely on operational involvement would displace state-law judgments without requiring undercapitalization, fraud, abuse of the corporate form, alter ego, or other traditional bases for personal liability.
The court acknowledged that existing circuit precedent required the economic-reality instruction. It therefore instructed the jury on the multi-factor test. But the court added the limiting language based on the Fifth Circuit’s decision in Gray v. Powers, which held that participation in joint decisions with co-owners does not, by itself, show that an individual had authority in an individual capacity to control employment terms. The court ultimately described its own limiting instruction as a “half-measure” because it remained concerned that the broader economic-reality framework blurs distinct questions and misreads the FLSA’s definition of employer. The court concluded that appellate clarification would help determine whether the FLSA displaces state-law principles governing personal liability of corporate officers and owners for corporate obligations.
Looking Forward
This decision is important for employers because it pushes back against an expansive use of the FLSA’s economic-reality test. The court did not hold that corporate owners or officers can never face individual liability under the FLSA. It did not rewrite Fifth Circuit law, and it still gave the economic-reality instruction required under existing precedent. But the court’s analysis provides a defense-oriented framework for resisting efforts to convert ordinary entity-level management into personal-capacity liability.
The opinion’s most useful point is its separation of two questions that plaintiffs often compress into one. Whether a worker is an employee rather than an independent contractor is not the same question as whether an owner or officer should be personally liable for the employer’s wage obligations. The first question concerns the worker’s status. The second concerns the defendant’s liability capacity. That distinction matters in franchise, multi-unit, private-equity-backed, family-owned, and closely held business structures where individuals may participate in management without intending to assume personal liability for entity obligations.
For franchisors, the case has a valuable analogy even though it does not involve a franchise system. Plaintiffs and agencies sometimes seek to transform business oversight, brand-protection activity, operational guidance, or entity-level decision-making into employment liability. This opinion cautions against that kind of doctrinal creep. It recognizes that legal doctrines have distinct purposes and that tests designed for one context should not automatically override corporate separateness, agency principles, or limited-liability rules in another.
The decision also reinforces the practical importance of capacity. The court focused on whether the individuals acted personally or in their capacity as Drebco’s owners and officers. That distinction can matter for franchisors, franchisees, officers, directors, private equity sponsors, parent companies, area developers, and management companies. A person or entity may participate in business decisions without necessarily becoming a separate employer for every worker affected by those decisions. The more clearly parties document roles, preserve entity separateness, and avoid personal assumption of employment obligations, the stronger the defense against efforts to collapse those distinctions.
The opinion further supports carefully drafted jury instructions in FLSA cases. Pattern instructions can provide a starting point, but they may not capture limiting principles that matter in a particular case. Here, the court added language explaining that joint ownership and joint decisions on behalf of the company were not enough. Employer-side defendants should consider whether an economic-reality instruction requires similar clarification when plaintiffs seek to impose liability on owners, officers, managers, affiliates, or other parties based on actions taken for an entity.
At the same time, businesses should not overread the decision. The court recognized that state law may impose personal liability in exceptional circumstances, including alter ego or other recognized exceptions. It also did not address situations involving sham entities, economically separate entities jointly employing workers, or individuals independently employing workers outside the corporate relationship. The better takeaway is measured: corporate status alone should not create FLSA liability, and ordinary management activity should not automatically become personal liability, but entity separateness must be respected in practice.
For franchisors and employers, Steele is a useful addition to the broader defense conversation about control. Control remains a relevant concept in employment law, but courts should ask what kind of control, exercised by whom, in what capacity, and for what legal purpose. This opinion gives defendants language and reasoning to resist one-size-fits-all economic-realities arguments that ignore corporate separateness and the limited-liability principles on which modern business structures rely.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
