The Buck Stops Where?  Personal Liability in Wage and Hour Litigation in California 
The Buck Stops Where?  Personal Liability in Wage and Hour Litigation in California 

Even seemingly minor wage and hour violations present a very real threat of crippling or potentially ruinous liability for California’s employers when assessed in class and Private Attorneys General Act (“PAGA”) representative action lawsuits. To make matters worse, plaintiffs are increasingly targeting individual owners and agents in addition to their corporate employer, which begs the question: When can individuals be held personally liable in wage and hour lawsuits? 

In Reynolds v. Bement (2005) 36 Cal.4th 1075, an employee named, in addition to his corporate employer, eight of the individual officers, directors, and shareholders of the employer corporation in a putative misclassification class action.  The California Supreme Court rightfully rejected the plaintiff’s expansionist efforts and held that the Industrial Wage Commission’s definition of “employer” does not impose liability on individual corporate agents acting within the scope of their agency.

While Reynolds represented a victory for individuals operating businesses in California insofar as their status alone was insufficient to confer liability, the pendulum has since swung to the other side.  On January 1, 2016, California Labor Code section 558.1 took effect.  It provides:  “Any employer or other person acting on behalf of an employer, who violates, or causes to be violated,” certain provisions of the IWC Wage Orders and various statutory provisions (regulating the payment of final wages, wage statements, the provision of meal and rest period premiums, minimum and overtime wages, and the reimbursement of business expenses) may be held liable as the employer.  The “other person acting on behalf of an employer” is limited to a natural person who is an “owner, director, officer, or managing agent” of the employer.

Now – over five years later – it is still unclear what the legislature intended “violates, or causes to be violated” to mean.  Plaintiffs often take the position that section 558.1 requires no causal connection between someone falling into one of these categories and the purported Labor Code violation.  However, until recently there was no California Court of Appeal guidance on the issue.

On May 28, 2021, the Fourth District Court of Appeal, Division One in Usher v. White (2021) 64 Cal.App.5th 883, determined that to be held personally liable as an “other person acting on behalf of an employer” for certain wage-and-hour violations, an owner of the employer must have been personally involved in the purported violation or had sufficient participation in the activities of the employer such that the owner may be deemed to have contributed to the violation. 

Usher was a putative class action alleging a misclassification of individuals as independent contractors.  The individually-named Defendant, Shirley White, was a 50 percent owner of the entity employer and corporate officer.   Ms. White engaged in the following activities:  signed loan documents for the company; was a signatory on the company bank account; registered the company to conduct business in California; signed paperwork that led to the cessation of company business in California; was identified and pictured on the company website as owner of the company; sent, received, and forwarded work-related emails from the company administrative email account; attended a training meeting with Plaintiffs subject to the suit; electronically signed the paychecks of Plaintiffs; and may have spoken a few times to one of the Plaintiffs.

Crucially, however, Ms. White did not participate in the decision of how to classify the Plaintiffs, did not participate in the day-to-day operations of the company, and was not a “decision-maker” in terms of operational/managerial decisions. Consequently, Ms. White’s participation in the activities of the employer were not enough to hold her personally liable, and the Court of Appeal affirmed summary judgment in her favor and held that the words “violate, or causes to be violated” have an ordinary meaning.

Thus, to be liable under Labor Code section 558.1, an individual must either: (1) “have personally been involved in the purported violations of the one or more of the enumerated provisions;” or (2) “had sufficient participation in the activities of the employer, including, for example, over those responsible for the alleged wage and hour violations, such that the “owner” may be deemed to have contributed to, and this for the purposes of the statute, ‘cause(d)’ a violation.”

The court nevertheless made clear that whether the test is satisfied in any given case cannot be determined by a bright line rule as the inquiry requires examination of the particular facts in light of the conduct.

While cases like Usher are good news for truly passive business owners operating in California, the case fell short of describing with any particularity what amount of participation in the activities of a business is enough to hold an individual liable under section 558.1.

Meeting the rigorous requirements of California wage and hour laws can be a challenge, but ensuring these requirements are met is not only in the best interest of the corporate employer but also the individuals who own and run the business.

If you have questions about California’s wage and hour requirements or your businesses practices, contact the authors or your usual trusted counsel at AALRR.

This AALRR  post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.  

    © 2021 Atkinson, Andelson, Loya, Ruud & Romo

Categories: Litigation, PAGA

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