In good news for San Diego business owners, the California Supreme Court recently held that a former employee cannot use a conversion of wages claim to hold the business owners personally liable for unpaid wages. Conversion is a legal claim that asserts that a person, like the owner of a business, has taken or converted something of value held by another without cause or legal justification. A typical example might be the conversion of a physical object, such as a vehicle. Say, the owner loans an automobile to his or her neighbor, but the neighbor refuses to return the car. Among other legal claims that could be asserted, the owner of the automobile can sue to recover possession of the car under the legal theory of conversion. That is, the neighbor wrongfully converted the car to his/her possession.

In a recent case involving unpaid wages, a former employee attempted to use the legal theory of conversion to sue the owners for unpaid wages. See Voris v. Lampert, Case No. S241812 (Cal. Supreme Court August 15, 2019). As a matter of law, a conversion claim can be made against the individual owners and also allows for the imposition of punitive damages against the owner. This means that a conversion claim, if allowed, would bypass the corporate shield that protects an owner’s personal assets and permit a plaintiff employee to recover not only the unpaid wages, but also a punitive amount of damages which are assessed as “punishment.”

In Voris, the plaintiff — Brett Voris — was a former employee of a California LLC called Premier Ten Thirty One Capital (“PropPoint”). Voris performed marketing and advertising work for PropPoint and was later recruited to do similar work for two other LLC business ventures that were also owned by the same two business owners. Voris was promised various wages by PropPoint and the other two businesses. But the new ventures did not succeed, and the businesses failed. Voris was not paid his wages.

Voris brought suit against the businesses and against the owners personally for his unpaid wages. Voris was successful in winning a judgment against the limited liability companies, but those companies had no assets. Thus, Voris was unable to collect his unpaid wages.

In his suit, in addition to suing for unpaid wages under the California Labor Code, Voris sued the individual owners for “wage conversion.” This claim would have allowed Voris to recover his lost wages from the personal assets of the owners and to also recover, potentially, punitive damages against the owners. At the trial level, this particular claim was rejected. The trial court held that “wage conversion” was not allowable, particularly in light of the various provisions of the California Labor Code and Wage Orders. A divided California Court of Appeals agreed with the trial court and, as noted, the California Supreme Court recently agreed.

In affirming, the California Supreme Court agreed with the trial court that, given the other remedies provided by the Labor Code, “wage conversion” was not necessary and would be detrimental to labor relations. As the court noted, allowing claims for “wage conversion” would morph every “garden-variety suit involving wage nonpayment or underpayment” into a suit filed against the owners of a business. The nature of conversion would jeopardize non-owners in the senior management, since, in theory, “wage conversion” could apply to the CEO of a company. The court was sympathetic to punishing corporate owners and officers who “… withhold wages to punish disfavored employees or who deliberately run down corporate coffers to evade wage judgments.” However, the court noted that the Labor Code and other provisions of the labor law are adequate to prevent these types of wage-nonpayment abuse.

Contact San Diego Corporate Law

For more information, call Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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