Employers: You Have More At Risk Than You Probably Realize
One of the first items on the To Do List for new employers is typically spending serious time, and resources, with their corporate attorneys creating a business entity which they think shields them from a bad day in court. And then they sleep well at night under the presumption that their personal assets are protected from liability. But have they been promised a false sense of security?
California’s “A Fair Day’s Pay Act,” which codifies Labor Code Section 558.1, imposes personal liability for certain wage and hour violations. Specifically, Section 558.1 states that “any employer or person acting on behalf of an employer, who violates, or causes to be violated,” provisions regulating wages or hours, may be held personally liable “as the employer.” Section 558.1 expressly defines “employer or other person acting on behalf of an employer” to include a “natural person who is an owner, director, officer, or managing agent of the employer.” In non-lawyer speak this code provision means that any managing agent who “causes” a wage and hour provision violation could be held personally liable for that breach. Scared yet?
This code provision was tested in Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809 when two former employees filed a lawsuit against a restaurant (a corporation) and its shareholder-owner for unpaid overtime wages, failure to pay minimum wage, and failure to timely furnish accurate wage statements, among other claims. Following a nine day bench trial, the trial court awarded Plaintiffs over $30,000 in civil penalties, and additional attorneys’ fees and interest. While the case was appealed, the restaurant filed for bankruptcy and the appeal proceeded to determine whether the owner could be held personally liable for civil penalties for violations of overtime pay and minimum wage laws under Section 558(a) and Section 1197.1. The court ultimately concluded that it was entirely clear – the legislature intended that owners, directors, officers, and managing agents may be held personally liable for violations of certain wage and hour laws.
If there is any silver lining it is that the impact of this code provision is limited by laws that require employers to defend or indemnify employees sued by third persons for conduct occurring in the course and scope of employment. (e.g., Labor Code Section 2802). It is also important to keep in mind that California law does not impose liability on corporate officials or employees based on that status alone - individuals can only be held liable if they personally “caused” the violation. Under the right circumstances could that even be an HR manager? No case has yet determined that question, but this code section appears to deliberately casts a wide net.
While this result may seem downright unfair, decisionmakers should certainly be aware of this risk. Now more than ever, employers should ensure that their wage and hour practices are in compliance with state and federal guidelines. As we like to say, “It’s good for you, it’s good for your employees, and it’s good for YOUR bottom line.” For more information or to discuss any of your employment concerns, please contact our employment attorneys at Hall Griffin LLP.