After two years, California courts are finally putting California’s “A Fair Day’s Pay Act” (the “Act”) to the test. While intended to help employees collect judgments against employers that are judgment proof, the Act created potential personal liability for an employer’s owners, directors, officers, and managing agents. Indeed, the Act added Labor Code Section 558.1, which imposes personal liability for certain wage and hour violations. Specifically, Section 558.1 states that “[a]ny 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.” Accordingly, potentially any managing agent who “causes” a wage and hour Labor Code provision to be violated could be held personally liable. While the passing of Section 558.1 caused uproar over the imposition of personal liability for wage and hour violations, the California Court of Appeal recently clarified that even in the absence of this new section, the labor code imposes personal liability.
In Atempa v. Pedrazzani, two former employees (“Plaintiffs”) filed a lawsuit against Pama, a restaurant doing business as Via Italia Trattoria, and the owner, Mr. Pedrazzani (collectively “Defendants”). The Plaintiffs alleged that while employed by the restaurant, Defendants failed to pay overtime wages, failed to pay minimum and regular wages, and failed to timely furnish accurate wage statements, among other claims. Following a nine day bench trial, the trial court awarded Plaintiffs $30,000 in civil penalties, attorneys’ fees, and interest. On appeal, the court sought to determine whether the owner, Mr. Pedrazzani, 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. Specifically, the court sought to determine where Sections 558(a) and 1197.1 permitted persons “other than the corporate employer” to be liable for civil penalties for a failure to pay regular and overtime wages, when there was no allegation that the employer had engaged in fraud, failed to follow corporate formalities, or was inadequately capitalized (i.e., when there was no allegation that the corporate veil should be pierced).
The court concluded that Sections 558(a) and 1197.1(a) are clear – owners, directors, officers, and managing agents may be held personally liable for violations of certain wage and hour laws. Therefore, Mr. Pedrazzani, the employer’s owner, president, secretary, and director was held personally liable for over $30,000 in civil penalties, and an additional $300,000 in attorneys’ fees, because he either violated, or caused to be violated, the overtime pay and minimum wage laws.
Notably, the impact of Section 558 and 558.1 are limited by laws which require employers to defend or indemnify employees sued by third persons for conduct occurring in the course and scope of employment. See Labor Code Section 2802. Unfortunately for Mr. Pedrazzani, his employer filed for bankruptcy after the initial trial court judgment. Therefore, the appellate court affirmed that Mr. Pedrazzani was personally liable for the entire judgment, without indemnification from his employer. While this result may seem surprising (or downright unfair), employers and all owners, directors, officers, and managing agents of employers, should be aware that individuals may be held personally liable for civil penalties if they violate, or cause to be violated, certain wage and hour laws. Accordingly, now more than ever, employers should ensure that their wage and hour practices comply with the applicable laws to keep personal liability to a minimum.