Cal-Peculiarities: How California Employment Law is Different 2022 Edition

©2022 Seyfarth Shaw LLP  www.seyfarth.com 2022 Cal-Peculiarities | 249 joint employer. The trial court was concerned that if Parent were held liable because of his control as sole shareholder and president of Koji’s, then all owners of closely held corporations would suffer the same fate. But the Court of Appeal reversed, holding that Parent could be individually liable as a joint employer because he was the “big boss” who hired and fired managers and laid off the employees . 433 The Court of Appeal also held that personal liability could be possible on an “alter ego” theory, emphasizing that the theory applies not only when a sham corporate entity is formed to commit a misdeed, but also when the corporate form is used to circumvent a statute or to accomplish some other wrongful purpose . 434 Penalties. The “A Fair Day’s Pay Act” added Labor Code section 558.1 to enhance the Labor Commissioner’s enforcement authority to recover civil penaltie s. 435 Under Section 558.1, any employer or any “other person acting on behalf of an employer” may be held liable for violations of the directives appearing in the Wage Orders and in various provisions of the Labor Code. The Legislature defines “other person acting on behalf of an employer” as “a natural person who is an owner, director, officer, or managing agent of the employer. ” 436 The “managing agent” definition mirrors the definition found in California’s punitive damages statute. Under that statute and case law, “managing agents” are all employees who exercise substantial independent authority and judgment in their corporate decision-making such that their decisions ultimately determine corporate policy. In one case, restaurant employees seeking unpaid wages sued their corporate employer and also Paolo Pedrazzani—the corporation’s owner, president, secretary, and director. The employees invoked PAGA to seek civil penalties under Labor Code sections 558 and 1197.1, which authorize recovery of civil penalties against the employer “or other person acting on behalf of an employer” who violates or causes a violation of those statutes. After a bench trial, the trial court issued civil penalties against Pedrazzani individually as an “other person” who caused violations of the overtime and minimum wage statutes. The Court of Appeal affirmed, reasoning that Pedrazzani could be personally liable for civil penalties—even in the absence of a viable “alter ego” theory— because Sections 558 and 1197.1 authorize the Labor Commissioner to recover civil penalties, and because PAGA authorized plaintiffs to recover those penalties in the Labor Commissioner’s place: “California … has decided that both the employer and any ‘other person’ who causes a violation of the overtime pay or minimum wage laws are subject to specified civil penalties.” The Court of Appeal concluded that if a party other than the employer committed or caused to be committed violations of the overtime and minimum wage laws, then that party is personally liable for “certain civil penalties regardless of the identity or business structure of the employer. ” 437 “Conversion” not a viable theory of recovery. In 2019, the California Supreme Court did push back a bit on personal wage-and-hour liability by rejecting tort claims for conversion as a basis for seeking unpaid wages from an individual . 438 Alter ego. In 2020, the Court of Appeal upheld a judgment of almost $500,000 for unpaid wages, attorney fees, and costs against a couple who owned a small travel company . 439 T hese individual owners were personally liable as alter egos. The Court of Appeal explained that that the alter ego doctrine arises when individual defendants have used “the corporate form unjustly and in derogation of the plaintiff’s interests. In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation.” Alter ego liability depends on (1) “such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist” and (2) whether “adherence to the fiction of separate existence would, under the circumstances, promote fraud or injustice.” Here, it was critical that the individual owners commingled personal and corporate assets, using corporate funds to pay their personal rent and using personal funds to pay the plaintiff’s salary. The evidence supported a finding of alter ego even though there was no evidence that the business was undercapitalized or was a mere shell or conduit for the individual defendants’ personal business.