New Law Increases Liability For Individuals Acting On Behalf Of Employers

Written by Galen T. Shimoda and Erika R. C. Sembrano

The California legislature became increasingly aware that many “bad actors” would simply keep employees’ hard-earned wages instead of paying employees what was rightfully earned.  So, the legislature responded, and responded strongly.  Effective January 1, 2016, individual people can be sued for violations of the Labor Code that originally only the employing entity would be sued for outside of Private Attorney General Act claims.  California Labor Code section 558.1 states that any employer or other person acting on behalf of an employer (owners, directors, officers, managing agents) can be held liable for certain violations of the law.  These violations include failure to pay minimum wages, overtime wages, reimbursement expenses, meal and rest periods, and all wages upon separation of employment.  Needless to say, these types of violations can result in a very high amount of damages that employees can seek to recover.

Prior to January 1, 2016, an employee only had a limited ability to get damages from an individual acting on behalf of an employer.  The California Supreme Court, in Reynolds v. Bement (2005), made it a rule that individual corporate agents who acted within the scope of their position for the corporation were not liable for failure to pay minimum or overtime wages.  The Reynolds rule meant that if a corporation failed to pay its employees all minimum or overtime wages, the employees could not sue the owners or directors of the corporation to recover the wages.  Indeed, individuals acting on behalf of the employers were generally protected.

California Labor Code section 558.1 changes the game by expanding an employee’s options for recovery.  Let’s say Earl works for Company and Octavius owns Company.  Company failed to pay Earl at least minimum wage for each hour he worked for Company.  Before January 1, 2016, Earl, in his individual capacity, could only sue Company.  Now, Earl can sue Company and Octavius to recover damages caused by this violation.  Because of California Labor Code section 558.1, employees can seek to recover remedies from individual corporate agents for unpaid minimum or overtime wages without proceeding under the Private Attorney General Act!

Increased protection for employees has been much needed.  More often than not, employers (usually corporations) will claim to not have enough money to pay employees for all violations of the law; however, the owner has enough money.  An employee is able to seek to recover damages not only from the corporation but also from the owner of the corporation.  The new law is clearly geared towards not allowing individuals to have their cake and eat it too.

Importantly, the statutory language of California Labor Code section 558.1 does not preclude employees from utilizing this new law through a private lawsuit, which means that employees can rely on California Labor Code section 558.1 when suing the employer and the individuals acting on behalf of the employer.  The remedies themselves, however, are based on the underlying statutes, such as Labor Code section 1194 (failure to pay minimum and overtime wages) and Labor Code section 2802 (failure to provide reimbursement expenses).  In other words, it seems that California Labor Code section 558.1 serves as a basis for who the employee can seek damages from, not necessarily what the employee can seek to recover.  This is unlike California Labor Code section 558, which allows employees to recover a certain amount of penalties on top of the underlying damages.

California Labor Code section 558.1 represents a big step in making sure that California employees are paid properly for all time worked and that employers and individuals acting on behalf of employers do not take unfair advantage of employees.  If you feel that you have not been paid correctly, contact our office to have your claims evaluated.

The Shimoda Law Corp. legal articles should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents of these articles are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.

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