California has strict wage-and-hour laws, protecting workers who have been illegally denied overtime pay, misclassified or otherwise shortchanged by their employers. These workers can file suit against their employers, seeking return of their lost wages.
One controversial aspect of these cases is related to who or what, exactly, can be held liable for wage-and-hour violations. Workers generally seek compensation from their employers as a business, but there have been cases where workers have been able to hold business owners personally liable.
Personal liability in general
Business owners and managers may be shielded from personal liability for taxes and business debts, depending upon the business structure of the company. For instance, a corporation typically bears all liability for the business. Generally speaking, if creditors demand the corporation pay what they are owed, the money comes from the corporation. The creditor will have a hard time “piercing the corporate veil,” as the expression goes, to recover compensation from the personal bank accounts of the corporation’s executives.
By contrast, in a small business that is run as a sole proprietorship there may be no legal separation between the owner and the business. The owner of a sole proprietorship can generally be held personally liable for the debts of the business.
In wage-and-hour cases
In a 2005 case, a worker alleging wage-and-hour violations filed suit against not only his employer, but also several of its executives and shareholders. The case went to the California Supreme Court, which ruled that the wage-and-hour law did not allow plaintiffs to hold individual corporate officers liable for actions they did within the scope of their corporate duties.
Earlier this year, a state appeals court revisited the issue in a case where a worker attempted to hold their employer company’s owner personally liable for wage-and-hour violations. The appeals court ruled that the owner could not be held personally liable unless she had been personally involved in the violations.
In this case, the owner was not personally involved, and so could not be held personally liable. However, the court opened the door to the possibility that other owners might be held liable if they were personally involved in wage-and-hour violations.