This blog post explores several California statutes that allow workers to sue individuals for unpaid wages and related claims. That scenario normally arises when workers are employed by a business entity such as a corporation, and that entity is unable or unwilling to pay the wages that it owes. As demonstrated by the Atempa case analyzed below, the issue of whether individuals can be held liable can become critical when a corporate employer files for bankruptcy in an effort to avoid its obligations to its workers.
The relevant statutes discussed are Labor Code sections 558, 558.1, 1197.1, and 351.
Labor Code section 558
Labor Code section 558 provides that an employer “or other person acting on behalf of an employer” who violates or causes a violation of the state’s applicable wage and hour laws shall be subject to a civil penalty as follows:
(1) For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.
(2) For each subsequent violation, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.
Under the Private Attorneys General Act of 2004 (“PAGA”) (Lab. Code, § 2698 et seq.), employees may seek civil penalties for Labor Code violations committed against them and other aggrieved employees by bringing a representative action against their employer. Therefore, the language in section 558 sounds promising, in that it indicates that workers may be able to recover both the civil penalties mentioned and the unpaid wages.
However, in ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175, 182, the California Supreme Court held that the civil penalties that a plaintiff may seek under section 558 do not include the “amount sufficient to recover underpaid wages.” Therefore, a worker who sues under section 558 can only recover civil penalties, and not her unpaid wages or other damages.
Labor Code section 558.1
Labor Code section 558.1 is broader than section 558. It applies to “[a]ny employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802.”
Section 558.1(a) states clearly that any such person “may be held liable as the employer for such violation.” Section 558.1(b) limits the term “other person acting on behalf of an employer” to “a natural person who is an owner, director, officer, or managing agent of the employer, and the term “managing agent” has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.”
Section 558.1 is not limited to civil penalties. Therefore, presumably it applies to claims for unpaid wages, liquidated damages, and statutory penalties for untimely payment of wages. A worker seeking such damages from an individual (as opposed to a corporation) would therefore seem to have a clear path forward under section 558.1. To be clear, those claims would have to be brought outside of PAGA in light of the holding in ZB, N.A. discussed above.
Labor Code section 1197.1
Labor Code section 1197.1 provides that an employer “or other person acting either individually or as an officer, agent, or employee of another person” who pays or causes to pay an employee less than the state’s applicable minimum wage shall be subject to a civil penalty. shall be subject to a civil penalty, restitution of wages, liquidated damages payable to the employee, and any applicable penalties imposed pursuant to Section 203.
Under the clear language of section 1197.1, a worker could therefore sue an individual officer, agent, or employee for failure to pay the minimum wage. Again, any claims for wages or liquidated damages would have to be brought outside of PAGA in light of the holding in ZB, N.A. discussed above.
Labor Code section 351
Labor Code section 351 restricts the ability of employers “and agents” to take all or part of an employee’s tips. Section 350(d) defines the term “agent” as “every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.” Under this broad definition, an agent who takes all or part of an employee’s tips appears to be liable under section 351.
Atempa v. Pedrazzani
Sections 558 and 1197.1 were explored in some detail in the case of Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809. In Atempa, two workers claimed that they had not been paid wages that they were owed by a restaurant called Via Italia Trattoria (Via Italia). Via Italia was run by a corporation called Pama. Pama’s owner, president, secretary, and director was a person named Paola Pedrazzani.
The workers sued both Pama and Pedrazzani. They prevailed in the trial court, and were awarded approximately $30,000 in penalties plus their attorneys’ fees. Significantly, the court found that Pama and Pedrazzani were jointly and severally liable for the penalties.
The defendants then appealed. While the appeal was pending, Pama filed for bankruptcy and was dismissed from the case. As a result, the plaintiffs’ only hope for recovering the wages that they were due was if they could maintain their claims against Pedrazzani.
The case therefore would up presenting a clear question of law: Where the workers are employed by a corporation, can an individual be held liable for penalties associated with statutory violations in the payment of wages where there was no allegation or finding that the corporate laws had been misused or abused for a wrongful or inequitable purpose? In other words, do sections 558 and 1197.1 allow workers to recover civil penalties for nonpayment of wages from individuals even when there are no other grounds for piercing the corporate veil under the doctrine of alter ego?
The court of appeal concluded that under the clear language of sections 558 and 1197.1, the State of California, through the Labor and Workforce Development Agency (“LWDA”), can recover penalties associated with unpaid wages from individuals. Furthermore, PAGA allows employees to stand in the shoes of the LWDA and recover those penalties. Accordingly, employees are also permitted to recover those penalties from individuals.
Significantly, however, Atempa only addressed civil penalties recoverable under PAGA through sections 558 and 1197.1. It did not address whether the plaintiffs could have sued Pedrazzani individually for unpaid wages under Labor Code section 558.1.
If you have questions about your wages or tips, please feel free to contact the experienced California wage and hour attorneys at Hunter Pyle Law for a free and confidential intake process. We can be reached at www.hunterpylelaw.com.