The following blog article was written for Webb Law Group, APC.
How well do you know and understand the California Labor Code? Whether you’re an employee or an employer, it’s vital to know your rights and the rights of your employees. Knowing the law can save you a lot of time, money, and bad press.
According to California’s Labor Code § 558.1, an employing organization’s managers, owners, directors, officers, and agents can be held personally liable for wage and hour violations. While it’s true that (under certain circumstances) company employees who are sued may be indemnified by their employers, all companies have the responsibility to follow the law.
Following proper labor laws falls on the employer’s shoulders and not on those of the employees. Therefore, employees who have been wronged by an organization (or those acting on behalf of them) should seek legal counsel in matters of this nature.
Examining Labor Code Section 558.1
California Labor Code 558.1 went into effect on January 1st, 2016. It states the following:
(a) 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.
(b) 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.
(c) Nothing in this section shall be construed to limit the definition of employer under existing law.
Consequently, the law now states that liability in disputes of this nature may fall on both the employer, as well as those individuals acting on their behalf. These violations include unpaid overtime, unpaid minimum wage, denial of or failure to provide the legally-mandated number and length of breaks, inadequate wage statements, and failing to reimburse employees for business expenses.
This labor code defines “other person acting on behalf of an employer” rather broadly as an owner, director, officer, or managing agent of the employer. Therefore, one may assume this law applies to other higher-ranking employees acting on behalf of the company including supervisors, management, etc.
Theoretically, even standard, low level employees could cause violations of this nature to occur if they are taking on the “boss” role, despite having no stated, legitimate positional authority in the organization. Additionally, employees who violate the law (as well as the organization that allowed it to happen) can now be held legally responsible for their actions. However in practice, this code section would most likely only be used against owners of the company or high level management that truly caused the wage and hour violations in the first place.
In 2015, the California Legislature enacted Labor Law Section 558.1, making any “other person” acting for an employer who causes said employer to violate the state’s wage and hour laws personally and additionally responsible for said violation.
The case in question arose from a claim brought by 2 former employees of the California-based company Pama. The employees sued Pama and its owner, Paolo Pedrazzani, alleging that while they were employed, the company failed to pay overtime wages. Additionally, they claimed that Pama had failed to pay minimum and regular wages, and had failed to furnish wage statements in a timely manner.
Following a nine day bench trial, the court awarded the plaintiffs $30,000 in civil penalties, attorneys’ fees, and interest. On appeal, the court sought to determine whether Mr. Pedrazzani could be held personally liable for civil penalties for violations of overtime pay and minimum wage laws. Specifically, the court sought to determine whether the law permitted persons other than the company itself to be held liable for civil penalties.
Ultimately, the court concluded that, in fact, owners, directors, officers, and managing agents could be held personally liable for violations of certain wage and hour laws. Therefore, Mr. Pedrazzani was held personally liable for the $30,000 in civil penalties, over $300,000 in attorneys’ fees, and applicable interest on the unpaid wages.
Although California Labor Code § 558.1 allows for an employee’s personal liability to be recognized in matters of this nature, they rarely pay for wage and hour violations. This is because Labor Code § 2802 requires employers to indemnify employees from expenses. Of course, this includes legal expenses generated by claims against them. However, such claims against acting employees are not impossible.
For an employee to receive indemnification from their employer, he or she must have been working within the scope of and believed that they were acting lawfully in performance of their duties. Thus, if a court holds an officer, director, or managing agent liable for unpaid wages, the employer theoretically should reimburse that person for his or her legal expenses if they were acting on behalf of the employer.
However, Mr. Pedrazzani, the owner of Pama had the restaurant file for bankruptcy after the initial trial court judgment. Therefore, the appellate court affirmed that the owner Mr. Pedrazzani was personally liable for the entire judgment. Meanwhile, the case set precedence for protection of employee labor rights and opened the door to identify and assign guilt to others involved in said violations.
What You Need to Know
While this result may seem surprising and unfair, employers and acting agents of employers should be aware that individuals may be held personally liable for civil penalties if they violate 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.
Case law and precedence analyzing this relatively new labor code is sparse, at best. Naturally, this offers both companies and employees little direction as to how a court may interpret an employee’s role for wage and hour violations. Understandably, this is why it’s so important to consult a knowledgeable attorney for advice.
Are You in Need of Legal Advice?
If you’re a current or former employee in California and you feel you may have suffered financial losses at the hands of your employer, contact the professional team of lawyers at Webb Law Group, APC. Our team of attorneys can answer your questions about employment law and let you know if you may have a case against your employer or another party acting on their behalf.
If you feel you may need legal advice about an employment claim against your business brought by one of your employees, the team at Webb Law Group is here to answer any questions you might have. Webb Law Group is a reputable business and employment litigation firm with experience in matters involving California business and employment law.
Having a reputable attorney by your side for matters of this nature will offer you the best possible chance of navigating or avoiding lawsuits all together. If you feel that you need legal representation, we are happy to review your legal needs and provide consultation and support where necessary. For questions, or to schedule a consultation, contact Webb Law Group today at 559-431-4888 (Fresno) or 619-399-7700 (San Diego).
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