On April 16, 2008, a California Appellate Court decided Bradstreet v. Wong, holding that the shareholders, officers, or managing agents of the Employers could not be held personally liable for violations of the Labor Code arising out of the Employers’ failure to pay wages. The Court also held that individual defendants were not required to pay earned but unpaid wages as restitution under California’s Unfair Competition Law.
Defendants Toha Quan and Anna Wong owned the capital stock and served as corporate officers or directors of three garment manufacturing companies, collectively the Wins Corporations. They were also the managers and operators of these factories. Defendant Jenny Wong did bookkeeping and payroll work for the Corporations and served on the Board of Directors. For many months, the Wins Corporations did not have sufficient cash to pay employees, suppliers, and other expenses. Nonetheless, the Defendants encouraged employees to keep working without pay until the Wins Corporations collected accounts receivable and stabilized their finances. When employees complained about not being paid their wages, the Division of Labor Standards Enforcement (DLSE) and the United States Department of Labor (DOL) stepped in. The DOL sought injunctive relief, which caused the closing of the Wins Corporations, and the confiscation of assets and accounts receivable.
Thereafter, the Labor Commissioner filed this lawsuit, seeking to hold Defendants personally liable for unpaid wages and vacation pay owed to the Win Corporations’ employees. The Commissioner claimed that Defendants employed or exercised control over the wages, hours, and working conditions of the Wins Corporations’ employees and therefore, were personally responsible for Labor Code violations arising out of the Corporations’ failure to pay wages. The Commissioner further alleged that Defendants should be held personally liable because 1) they so abused the corporate entity that they should be deemed the alter egos of the Wins Corporations and 2) they were guarantors for the wages not paid by Wins Corporations. Two former employees and the Chinese Progressive Association filed a complaint in intervention, alleging claims similar to the ones the Commissioner had alleged, as well as a cause of action pursuant to Business and Professions Code section 17200, also known as the Unfair Competition Law, seeking restitution.
The Appellate Court agreed with the trial court which had ruled in the Defendants’ favor. In the Appellate Court’s opinion, under the common law definition, the employers were the Wins Corporations, not the Defendants and therefore, the Defendants were not personally liable for the unpaid wages and penalties.
Finally, the Court held that restitution was not an available remedy in a private action under the Unfair Competition Law because the Defendants had not personally acquired any money or property from the employees. The labor was not performed for the Defendants personally, but was performed for the employers, the Wins Corporations, and the Defendants did not appropriate for themselves corporate funds that would otherwise have been used to pay unpaid wages. Therefore, the Appellate Court concluded that an order requiring Defendants to pay the unpaid wages would not be "restitutionary because it would not replace any money or property that defendants took directly from the intervener."
This case confirms that in most cases, it is the Company, and not individuals who are part of the Company, that is responsible for paying wages to employees.