Personal Liability for Wage and Hour Violations Greatly Expanded Under California’s Fair Day’s Act

Posted: September 1, 2016 | News

Effective January 1, 2016

Under California’s new Fair Day’s Pay Act (SB 588), not to be confused with California’s Fair Pay Act addressing gender wage differentials, an aggrieved employee’s wage theft claim may be brought against the employer, as well as any “other person acting on behalf of an employer,” greatly expanding owner and executive personal liability for wage and hour violations in California.

The new law takes effect January 1, 2016, and extends to owners, directors, officers, and managing agents of the employer. These individuals may be personally liable for violations of any provision regulating minimum wages or hours and days of work under the Industrial Welfare Commission’s Wage Orders.

Under the federal Fair Labor Standards Act (FLSA), employees can bring claims against officers and agents of the employer who can be held individually liable in certain situations. For example, an officer or agent who has an ownership interest in a corporate employer and operational control of the corporation's business and payroll practices may be deemed an “employer” under the FLSA, along with the corporation itself. In contrast, under California law individuals are generally not liable for violation of California’s wage and hour laws . . . until now.

Before the enactment of the Fair Day’s Pay Act, California law did not impose personal liability on corporate officers or directors for wages owed by a corporate employer. The Industrial Welfare Commission’s definition of “employer” did not extend to individual corporate agents acting within the scope of their agency. This all changes January 1 with the enactment of Labor Code section 558.1.

The stated legislative intent of the new law is to crack down on “wage theft,” and in addition to creating individual liability, it gives the Labor Commissioner more enforcement rights against employers who do not pay employee wages. An employer engages in “wage theft” in a number of ways: requiring employees to work off the clock, failing to pay minimum wage, or making unlawful deductions from an employee’s pay. Governor Brown’s Wage Theft Prevention Law became effective January 1, 2012, and requires private employers in California to provide written notice to all non-exempt employees of certain employment information.

The Fair Day’s Pay Act takes things a step further, empowering the California Labor Commissioner to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment. The Labor Commissioner may now issue the notice of levy, regardless of whether a court has issued a writ of execution. The Labor Commissioner may place a lien on an individual’s or employer’s property, levy its bank accounts and accounts receivable, and even prohibit the employer from continuing to conduct business in the state unless and until the employer posts a surety bond. If the employer continues to conduct business in violation of the bond requirement, the Labor Commissioner is empowered to issue a stop order prohibiting the use of employee labor until the employer complies. Continued failure to observe a stop order is a misdemeanor. Individuals or business entities that contract for services in the long-term care or property services industries will be jointly and severally liable for unpaid wages where the individuals and business entities are on notice.

The new law also prevents owners from closing a business and opening a new, similar business. Any new business that is “similar in operation and ownership” to the employer is liable for the wages owed. This “same employer” definition for liability purposes includes a situation where: (a) the employees of the successor employer are engaged in “substantially the same work in substantially the same working conditions under substantially the same supervisors,” or (b) the new entity has, “substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of customers.”

What is the take away for employers and those acting on behalf of employers? Make certain that you are familiar with all federal, state, and local wage and hour laws that apply to your business, and act vigilantly to ensure that your business complies with those laws.

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At Ferruzzo & Ferruzzo, LLP, we know how important legal considerations can in life and this is why we take a very personal interest in your unique circumstances and work toward successful outcomes. Strong, lifetime relationships form the cornerstone of our practice and we’ve been Rooted in Relationship for over 40 years. As your legal needs change and evolve, let our broad range of experience, our risk-awareness and our business savvy navigate you through a rapidly-shifting legal environment.

Colleen M. McCarthy

Colleen M. McCarthy, Esq. is a Partner and chairs the Firm’s Employment Practices Group. She has dedicated her practice to representing and protecting employers, with a particular emphasis on risk mitigation through preventative counseling and sound practical advice. For 15 years, Ms. McCarthy has counseled employers about the complicated employment laws that impact their businesses to ensure that they are in compliance, and to reduce the chance of costly litigation. Ms. McCarthy may be reached by phone at (949) 608-6900 or email cmccarthy@ferruzzo.com