Q. Can Corporate Officers And Directors Be Sued Personally By Individuals For Wage Claims?
A. Ending confusion and speculation on this point, the California Supreme
Court recently ruled in the case of Reynolds v. Bement that corporate directors and officers cannot be held personally liable for the Company’s failure to pay wages to its employees.
Plaintiff Steven Reynolds sued his former employer and eight officers and directors alleging that he and other employees were improperly classified as exempt from overtime, as well as raising claims for other alleged violations under the Labor Code and wage orders. In holding the dismissal of the individual defendants, the Supreme Court rejected Plaintiff’s argument that the corporate directors and officers could be sued personally because they “exercised control” over the employees’ wages, hours and working conditions. Instead, the Court relied upon statutory language and long-standing common law principles of agency providing that agents and employees are not personally liable for the corporation’s breaches of contract.
However, the Court stated that the Labor Commissioner could continue to impose liability on individual corporate directors and officers in its administrative proceedings based on the notion that they “exercised control” over wages, hours and working conditions. The Court also left open the possibility of individual liability based on alter ego theories, misappropriation of unpaid wages for personal use, fraud, and recovery of civil penalties through the Private Attorneys General Act.