By: Ylan H. Nguyen

Atempa v. Pedrazzani (Cal. Ct. App. Sept. 28, 2018) No. D069001, 2018 WL 4657860.

Can corporate individualsother than the corporate employerbe held liable for alleged wage and hour violations?  A California Court of Appeal in San Diego recently considered this question and held that individuals, such the owner or officer of an entity, can also be held liable for wage and hour violations.

In 2013, two former restaurant employees sued their employer, Pama, Inc. and its owner, Mr. Pedrazzani.  The two former restaurant employees alleged seven causes of action relating to wage and hour violations, including unpaid overtime (California Labor Code Section 558) and unpaid minimum wages (California Labor Code Section 1197.1), through the Private Attorney General Act of 2004 (PAGA).  The employees prevailed on all their causes of action following a bench trial.  The trial court found both Pama and Pedrazzani jointly and severally liable for civil penalties based on unpaid overtime and minimum wage violations. Additionally, the trial court also found Pedrazzani liable for over $315,000 in attorneys’ fees under PAGA. While both Pama and Pedrazzani appealed, Pama’s bankruptcy filing during the pendency of the appeal left Pedrazzani the sole party on the hook for paying the civil penalties and attorneys’ fees.

The Court of Appeal rejected Pedrazzani’s argument that an individual should not be liable for an employer’s wage and hour violations without evidence that the employer was the individual’s alter ego (or some other means to pierce the corporate veil).  The Court of Appeal distinguished two California Supreme Court decisions, Reynolds v. Bement(2005) 36 Cal.4th 1075, and Martinez v. Combs(2010) 49 Cal.4th 35, which Pedrazzani relied upon.  Both cases essentially limit liability for wage and hour violations to the employer and not its agents.

Holding Pedrazzani personally liable for the civil penalties, the Court of Appeal relied on the “unambiguous” language of Labor Code Sections 558 and 1197.1, which states both the employer and “other person” who causes a wage and hour violation by failing to pay overtime or minimum wage are subject to civil penalties.  Concluding “the business structure of the employer is irrelevant,” the Court of Appeal reasoned that neither statute mentions the business structure, corporate form, or any potential reason or basis for disregarding the corporate form.  The Court concluded that as Pama’s owner, president, secretary, and director, Pedrazzani qualified as an “other person” within the meaning of Labor Code Section 558 and 1197.1.

Personal liability can attach even where the “other person” has no relationship with the employer.  With respect to the overtime violations under Labor Code Section 558, the court found it sufficient that the “other person” “act on behalf of the employer.”  For minimum wage violations Labor Code Section 1197.1, it is sufficient that the “other person” “pays or causes to be paid less than the prescribed minimum wage.”

Having established individual liability for wage and hour violations, the Court of Appeal relied on PAGA to award attorneys’ fees.

The key take-way from this case is that wage and hour violations not only expose an employer to civil penalties, but also expose its owners, officers, directors, or individuals overseeing wage and hour compliance (managers, supervisors, human resources directors, etc.) to personal liability. Such individuals may also be held personally liable for attorneys’ fees under PAGA.  Employers and managers must be more vigilant than ever in making wage and hour compliance a top priority.

Ylan H. Nguyen is an attorney with Wanger Jones Helsley PC and practices in Fresno and throughout the Central Valley.  Ylan’s practice focuses primarily on environmental law, public agency law, land use, and business litigation.  This article is intended to notify our clients and friends of changes and updates to the law and provide general information.  It is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship between the author and the reader.