SAN FRANCISCO—Individual managers can be held liable for employees’ unpaid wages under federal law, even if the company is in bankruptcy, a federal appellate court ruled Monday.

Overturning a lower court ruling on this issue, the 9th U.S. Circuit Court of Appeals in San Francisco ruled bankruptcy had no effect on the obligation of the managers to pay the wages.

The case, Boucher vs. Shaw, was brought by three former employees of the now-closed Castaways Hotel, Casino and Bowling Center in Las Vegas. The employees and their union filed suit against the casino’s chief executive officer, chief financial officer and labor relations manager for unpaid wages. The CEO and chief financial officer were the casino’s co-owners.

One of the former employees of the casino, which closed in 2004, sued under the federal Fair Labor Standards Act.

The defendants did not dispute their status as employers under the FLSA, but claimed they had no duty to pay Castaway’s employees’ wages when the casino converted from a Chapter 11 bankruptcy proceeding to Chapter 7 liquidation in February 2004, court papers say.

But the three-judge appeals panel disagreed. The court “cannot see how it makes a difference one way or the other whether the Castaways was in Chapter 11 or Chapter 7,” said the decision. “The Castaways is not a defendant, and the defendants are not debtors.”

Previous case law “leaves no doubt” that “the Castaways bankruptcy has no effect on the claims against the individual managers at issue here,” says the opinion, which concludes the managers are “independently liable under the FLSA.” The managers were considered employers because they exercised “control over the nature and structure of the employment relationship,” the court ruled.

The case was remanded for further proceedings. The appeals court affirmed the lower court’s ruling that the managers were not liable under Nevada state law.