In a key victory for employers and their corporate officers, directors, and management, on August 11, 2005, the California Supreme Court ruled in Steven Reynolds v. Christian 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 “shop managers” and “assistant shop managers” of the Earl Scheib automotive painting chain were improperly classified as exempt from overtime. Plaintiff also alleged a number of other wage-related claims under the Labor Code and wage orders.

In upholding the dismissal of the individual defendants, the Supreme Court rejected Plaintiff’s “exercise of control” liability theory. 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 declined to require the Labor Commissioner to change the way it handles administrative proceedings. The Supreme Court simply held that an employee could not proceed in court on his claims for overtime and other wage-related claims against individual agents of the company. It remains to be seen, therefore, whether the Labor Commissioner will, in administrative proceedings, treat small business owners as the “employer” and seek to impose personal liability.