NEW CASE: California Employers Beware – Business Owners Can Be Held Personally Liable For Wage And Hour Violations

In a recent case (Atempa v. Pedrazzani), the California Court of Appeal held that an owner of a restaurant can be held personally liable for violations of California’s wage and hour law.

In this case, two former employees of a restaurant filed a claim against the restaurant (business entity) and the owner of the restaurant (personally) for unpaid wages.  Specifically, the former employees claimed that they were not paid minimum wage and overtime in accordance with California law.

By including the owner of the restaurant in the lawsuit, the former employees were testing whether the amendments made to California Labor Code §558.1 through the A Fair Day’s Pay Act (SB 588) really meant that certain individuals could be held personally liable for wage and hour violations without first “piercing the corporate veil” (i.e. claiming that the employer engaged in fraud, failed to follow corporate formalities, or the company was inadequately capitalized).

The law provides

  1. Any employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may be held liable as the employer for such violation.
  2. For purposes of this section, the term “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, and the term “managing agent” has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.

The Court held that California law is very clear – owners, directors, officers and managing agents can be held personally liable for violations of certain wage and hour laws.

While the actual “bite” of this law could be limited by California Labor Code §2802, which requires employers to defend or indemnify employees who are sued for conduct that occurred in the course and scope of employment, the idea that certain individuals can be personally liable for wage claims in California should incentivize owners of companies to take affirmative steps to verify that their companies are following California wage and hour law and paying employees properly.  After all, if employees are not properly compensated, the owner could be found personally liable for the entire wage claim.