Officers can be Liable for Violations of California Wage and Overtime Laws

One of the key advantages of incorporating your business is to shield yourself and your personal assets from liability with respect to business-related events and issues. This is true, normally, concerning employment issues. If an employee claims that he or she was harassed, any resulting civil court judgment or settlement is paid by the corporation, not by any of the individual owners or other employees. This is generally true for any type of decision-making of the corporation. As another example, directors of the corporation are generally free from personal liability as long as they have followed the “business judgment rule.” This is true even if the decision(s) turn out to be bad ones.

However, a recently decided case from the California Court of Appeals holds that an exception applies to the corporate shield with respect to violations of wage and labor laws. Of note, the director and officer were held personally liable for both the unpaid wages (and other violations) and for the plaintiffs’ attorneys’ fees. The company has filed for bankruptcy and the individual owner is facing a judgment of nearly $400,000. The case is Atempa v. Pedrazzani, Case No. D069001 (Cal. App. 4th Dist. September 28, 2018) (hereinafter “Atempa”).

Facts of Case

The case involved alleged wage and labor code violations for a restaurant in Encinitas called Via Italia Trattoria. The restaurant was incorporated as Pama, Inc. in 2002 by Paolo Pedrazzani, who was the sole owner, sole director, president, and secretary. Two employees sued both the restaurant and Pedrazzani. One was hired in 2008, first as a dishwasher and later as a cook and the second was hired in 2011 as a dishwasher. Both worked at the restaurant until mid-2013. In 2013, the plaintiffs sued the corporation/restaurant under various California wage and labor laws. They alleged failure to pay overtime wages, failure to pay minimum and regular wages, failure to timely furnish accurate itemized wage statements, unfair business practices, failure to maintain personnel and payroll records, and failure to provide required meal breaks.

In addition, the plaintiff sued Pedrazzani individually under Cal. Labor Code, § 2698 et seq. claiming that he was personally liable for the unpaid wages, overtime, etc., and that he was liable for attorney’s fees and litigation expenses related to that provision.

At trial, the plaintiffs were victorious, and a judgment was entered against the corporation for about $62,000. In addition, Pedrazzani was held personally liable for the approximate $62,000 judgment and for attorneys’ fees related to the case in an amount exceeding $315,000. On appeal, the Court of Appeals affirmed in all respects.

Court of Appeals Decision

The Court of Appeals upheld the decision based on clear language found in various California labor laws. For example, Labor Code § 1197.1(a) states:

“Any employer or other person acting either individually or as an officer, agent, or employee of another person, who pays or causes to be paid to any employee a wage less than the minimum fixed by an applicable state or local law … shall be subject to a civil penalty.”

According to the Court of Appeals, Pedrazzani was an “other person” as defined by this statute and other statutes. As such, it was statutorily permissible to hold Pedrazzani personally liable for the wage and labor law violations.

Pedrazzani argued that the corporation shield protected him and that, to hold him liable, the trial court needed to make a legal and factual finding that the corporate shield should be breached. In general, to pierce the corporate veil, the courts make factual findings and specifically hold that piercing the corporate veil is appropriate and allowable.

However, the Court of Appeals rejected Pedrazzani’s argument. According to the Court of Appeals, no veil piercing analysis was necessary since the statute clearly allows for an individual corporate officer/employee to be held liable. In other words, the wage and labor laws are an exception to the normal shield that the corporation provides. In coming to its decision, the Court of Appeals held that this case was different than two earlier California Supreme Court cases: Reynolds v. Bement, 116 P. 3d 1162 (Cal: Supreme Court 2005) and Martinez v. Combs, 231 P. 3d 259 (Cal. Supreme Court 2010). In both cases, the California Supreme Court held that the individual officers and directors were not individually liable for the statutory violations.

However, the Court of Appeals in Atempa held that Reynolds and Martinez did not control the outcome. In both Reynolds and Martinez, the plaintiffs were seeking to recover their wages and, in those cases, a key aspect of the case was how the word “employer” was defined in various laws and regulations. By contrast, in Atempa, the plaintiffs sought to recover the civil penalties associated with the wage and labor violations and there was no dispute or ambiguity with respect to the definition of “employer.” More to the point, the various statutes clearly allow for “other persons” to be held liable for violations; thus the question of defining the “employer” was not relevant.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters. To schedule a consultation, contact Mr. Leonard via email or call at (858) 483-9200. Legal services are proudly provided to business owners in San Diego and the surrounding communities. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal.

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