Who Is Personally Liable for Unpaid Wages in California?

Who Is Personally Liable for Unpaid Wages in California?

Until recently, it was harder for employees to recover damages for unpaid wages and other violations related to wage and hour laws from individual owners or officers of their employers. This issue stemmed from the requirement that employees demonstrate specific legal grounds to hold these individuals accountable, such as establishing “alter ego” liability. This type of liability arises when a court determines that a corporation and its owner are, in effect, the same entity, which permits the owner to be personally liable for the corporation’s debts and responsibilities. To address the ongoing challenge of employees recovering their wages, the California Legislature introduced Labor Code Section 558.1.

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California Labor Code 558.1

In 2016, California Labor Code 558.1 broadened the scope of liability for wage and hour violations, making it easier for employees to hold individual owners and officers accountable for unpaid wages and other labor code violations. This legislative change was intended to deter business owners from simply shutting down their operations, avoiding their financial obligations to employees, and subsequently starting new businesses without addressing their previous debts. By expanding liability, the law sought to enhance protection for workers and ensure they receive the wages they rightfully earn.

What Does California Labor Code 558.1 Mean for Businesses

California Labor Code Section 558.1 establishes that individuals can be held personally liable for certain wage violations if they meet the following criteria: 

  • They act on behalf of an employer, meaning they hold a position of authority or responsibility that allows them to make decisions or take actions that affect the employer’s operations. 
  • They fail to adhere to wage and hour laws, which can include various infractions, such as not paying employees the appropriate overtime wages, not providing required rest breaks, or failing to offer meal breaks as mandated by law. 

The individuals deemed to be “acting on behalf of an employer” are restricted to specific high-level positions, including: 

  • Owners: Individuals who have legal and financial ownership of the business. 
  • Directors: Members of the board who oversee the overall direction and policies of the organization. 
  • Officers: Corporate officials, such as the Chief Executive Officer (CEO) or Chief Financial Officer (CFO), who are responsible for the daily management and operation of the company. 
  • Managing Agents: Employees with significant discretion and authority to make decisions that impact the employment policies and practices of the organization.

This provision was enacted to ensure that those in positions of power are held accountable for failing to protect employees’ rights under labor laws.

Taking Action as a Business Owner

Given California’s shifting wage and hour laws, businesses should review their timekeeping and payroll records thoroughly and ensure compliance with state laws and regulations. Key focus areas include adherence to minimum wage, management of meal and rest breaks, and accurate final paycheck processing. Payroll statements must also include all legally required information. Furthermore, companies should routinely conduct thorough audits of their payroll procedures to reduce risks, identify discrepancies, and ensure staff are well-educated on their responsibilities. By implementing these assessments, businesses can proactively prevent legal issues. 

Moreover, the compliance warnings are vital and highlight the repercussions of negligence. Consequently, mistakes in payroll procedures may result in personal liability for both owners and managers. This underscores the necessity for prompt compliance measures to safeguard both the company and personal assets.

Learn More About Protecting Your Business, Contact Gould, Hahn, & Reinhardt Today

If you have questions about your company’s wage policies or want further information about California’s wage laws, contact Gould, Hahn, & Reinhardt today and speak with our experienced California labor law attorneys to review your legal options.