My Company Went Out of Business and Owes Me Wages: Successor Liability in California (2021)

Workers who are the victim of wage theft can bring claims either in court or at the Labor Commissioner to recover their unpaid wages, damages, and penalties. Those claims, if successful, result in a judgment against the workers’ employer. But what if the employer goes out of business to avoid liability, and reforms a short time later under a new name? This type of shenanigans can make it very difficult for the workers to recover the money that they are owed, even if they have a final judgment against their employer that cannot be appealed.

In an effort to remedy this situation, California has enacted an important new law that allows workers to recover unpaid wages from successor companies under certain circumstances. Labor Code section 200.3, effective January 1, 2021, applies to judgments for wages, damages, and penalties. It allows workers to sue successors where any of the following criteria are met:

(1) The successor uses substantially the same facilities or substantially the same workforce to offer substantially the same services as the judgment debtor.

(2) The successor has substantially the same owners or managers that control the labor relations as the judgment debtor.

(3) The successor employs as a managing agent any person who directly controlled the wages, hours, or working conditions of the affected workforce of the judgment debtor.

-or-

(4) The successor operates a business in the same industry and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor.

Importantly, workers need only show that one of those criteria is present in order to proceed under Section 200.3. Those criteria are very broad, and they are worth taking a closer look at.

For example, the first clause allows the transfer of liability to companies that use the same (or similar) buildings to provide the same services to their clients. It also applies to companies that use the same (or similar) workers.

The second clause allows the transfer of liability to companies that employ the individuals who controlled the labor relations at the previous company. The third clause would apply if one company had a manager who had also managed the workers at the company that owed the unpaid wages. And the fourth clause would apply to a business in the same industry that had an immediate family member as an owner, partner, etc.

Again, if workers can show that a company meets any of these criteria, they can hold that company liable for their unpaid wages even if their former employer no longer exists. That is a huge benefit to the workers who are trying to recover those wages.

At the time that Section 200.3 was passed, the Legislature also amended other existing laws to require that corporations, limited liability companies, and other businesses, inform the State as to whether any officer or any director, or, in the case of a limited liability company, any member or any manager, has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for the violation of any wage order or provision of the Labor Code. That data must be included in the statement of information that certain businesses must file with the California Secretary of State within 90 days of forming, and then once every year or two, depending on the type of the business.

Statements of information must be certified as true and correct, and are normally available on line. (See https://businesssearch.sos.ca.gov.) This new legislation therefore should make it much easier to determine whether the people behind California businesses have judgments for unpaid wages against them. If so, Section 200.3 makes it a lot easier for workers to pursue them for those unpaid wages.

If you have questions about your unpaid wages, feel free to contact the experienced wage and hour attorneys at Hunter Pyle Law for and make use of our free and confidential intake process. We can be reached at (510) 444-4400 or at inquire@hunterpylelaw.com.