The California Court of Appeal recently held that an individual (i.e., an owner, director, officer, or managing agent of a corporate employer) can be found liable for civil penalties resulting from the employer’s failure to comply with California’s overtime pay and minimum wage laws  with no showing that the individual misused or abused the corporate laws for a wrongful or inequitable purpose.

Background

In Atempa v. Pedrazzani, two restaurant employees sued their employer (Pama, Inc.) and its owner, Pedrazzani, for alleged wage and hour violations, including failing to pay overtime and minimum wages. The employees sued on behalf of themselves and on behalf other alleged aggrieved employees under the Private Attorneys General Act (PAGA). They prevailed in a bench trial on all causes of action. Pedrazzani moved to dismiss the claims against him following opening statements, but the trial court denied the motion. The trial court found Pedrazzani and Pama jointly and severally liable for $31,074 in penalties for overtime and minimum wage violations, and Pedrazzani liable for attorneys’ fees exceeding $300,000, and costs. Both Pedrazzani and Pama appealed, but Pama’s subsequent bankruptcy resulted in the dismissal of Pama’s appeal and left Pedrazzani solely responsible to pay the penalties, attorneys’ fees, and costs.

Fourth Appellate District’s Decision

The Court of Appeal modified the distribution of the penalties but otherwise affirmed the trial court’s judgment against Pedrazzani. The Court based its decision on the broad and “unambiguous” language in two statutes (California Labor Code §§ 558(a) and 1197.1) that make an “other person” acting on behalf of a corporate employer responsible for civil penalties assessed because of overtime pay or minimum wage violations. Pedrazzani argued, as a matter of equity, an individual should not be liable for the corporate employer’s violations without evidence of wrongdoing to justify piercing the corporate veil.

The Court disagreed, concluding that the trial court did not err because Pedrazzani, as the corporate employer’s owner, president, secretary, and director, qualified as an “other person” that caused the underlying violations — a finding Pedrazzani did not challenge on appeal.

Sometimes the “corporate veil” may protect the corporation’s owners from having to satisfy the corporation’s debts, including those for alleged unpaid contractual or statutory wages. This principle does not apply, however, regarding penalties for overtime and minimum wage violations. Instead, according to the Court’s interpretation, the statutes at issue “expressly allow for the recovery of [] civil penalties” from an individual owner, officer, or agent, and neither statute mentions the employer’s business structure, the benefits or protections of the corporate form, or any potential reason or basis to disregard the corporate form. Because the Legislature expressed no intent to limit personal civil liability for penalties, Pedrazzani could not rely on the common law as a defense to statutory liability.

Pedrazzani  remained liable for the civil penalties the trial court awarded to the employees, and, further, for their attorneys’ fees under a different statute (Labor Code § 2699), which entitles a prevailing employee in an action under the PAGA to an award of reasonable attorneys’ fees and costs.

Key Takeaway

Under Pedrazzani, an employer’s failure to pay overtime or minimum wages subjects not only the corporation to costly liability for statutory overtime pay and minimum wage violations, but also the corporation’s individual owners, officers, and agents. Such individuals may be held personally liable regardless of the identity or business structure of the employer.  Equitable considerations are also irrelevant under Pedrazzani.  Individual owners, officers, or agents, particularly those of small, locally-owned businesses alleged to have violated overtime pay and minimum wage laws, may have to satisfy the corporation’s debt with their personal assets.