Corporate Owners May Be Personally Liable For Wages: California Appeals Court
November 30, 2017, Santa Ana, California – California businesses should take note: if they violate California wage laws, their owners, officers, and directors can be personally liable. –Corporate officials may be liable as joint employers or alter egos for wage violations in California, according to a precedential decision published yesterday. The case is Turman et al. v. Superior Court, Case No. G051871, decided by California’s Fourth District Court of Appeal, Division Three.
Turman involves approximately 100 low-wage workers at two now-shuttered Southern California restaurants, who were part of a class action lawsuit alleging widespread wage theft. After the restaurants closed, the litigation principally focused on whether the plaintiff-workers could recover their unpaid wages from the closely-held corporation’s sole owner, officer, and director as their joint employer, or alternatively, whether they could recover from that owner or his other, still-active business as the restaurant corporation’s alter egos. As a result of the Court’s just-published opinion, the class of workers can now proceed to prosecute their wage claims (valued at over $5.7 million) against the owner and his other business, rather than pursuing a worthless judgment against an insolvent entity.
The Court published key sections of the opinion addressing individual owners’ liability. As to alter ego, the Court ruled that an employee need not prove that the alleged alter-ego corporation was formed for the purpose of committing fraud or other misdeeds. Even if an entity is formed for a lawful purpose, its owners or sister companies may nonetheless be held liable as alter egos if preserving corporate shield would lead to an inequitable result.
As to joint employer, the Court reversed the trial court which had mistakenly ruled that individual owners, officers, or directors cannot be liable as joint employers. The Court of Appeal held that “[The Owner’s] status as a sole shareholder and president of Koji’s cannot insulate him, or any other sole owner of a closely held corporation, from liability as a joint employer…” if he meets California’s test. The opinion offers clear guidance to trial courts that they cannot issue a blanket reprieve, but must consider each standard in California’s statutes and regulations to decide, case-by-case, if an owner, officer, or director should be held personally liable.
“Turman has the potential to help millions of California workers collect their wages,” said Bryan Schwartz, who argued the appeal after seven years of contentious litigation. He was joined by a long list of non-profit organizations representing low-wage workers, who cited in their briefing a 2013 study determining that in wage claim cases before California’s Labor Commission, 60% of the time, the employing business was found to be non-active. The study also found that 83% of workers who prevailed before the Labor Commissioner never recovered a penny of the judgment awarded. (See http://ccaucla-laborcenter.electricembers.net/wpcontent/uploads/ downloads/2014/04/Hollow Victories.pdf).
“This decision has the potential to boost law-abiding businesses, too, because they will not have to compete against shady businesses that underpay workers to gain unfair advantage, since the law-breaking owners and managers may have felt no accountability, until now,” said Schwartz.
“It has been a long road, but I am glad we stuck with it,” said Heather Turman, the first named plaintiff, who first brought her claims in 2010. “I hope that, because of this case, other workers will not have to go through such a long battle just to get their lawful wages paid,” she said.
Plaintiffs’ counsel is Bryan Schwartz Law (www.bryanschwartzlaw.com), and the Plaintiffs were supported by friends of the court (amici curiae) the California Employment Lawyers Association, Legal Aid at Work, Asian Americans Advancing Justice—Asian Law Caucus, Centro Legal de la Raza, Los Angeles Alliance for a New Economy, National Employment Law Project, Wage Justice Center, the Women’s Employment Rights Clinic of Golden Gate University School of Law, and the UCLA Labor Center.
About Bryan Schwartz Law
Bryan Schwartz Law is dedicated to continuing the struggle for civil rights and equality of employment opportunity and helping Americans from every background to achieve their highest career potential. The firm has recovered tens of millions of dollars in individual, class, and collective actions involving discrimination and retaliation, harassment, denied disability accommodations, whistleblower reprisal, wage and hour violations, Federal employees' rights, and severance negotiations.