According to California’s Labor Code § 558.1, a company’s owners, directors, officers, and even managing agents can be held personally liable for wage and hour violations. While true that under certain circumstances company employees who are sued may be indemnified by their employers, companies and their employees should seek legal help if uncertain about this area of the law.
Labor Code Section 558.1
California Labor Code § 558.1, effective January 1, 2016, states that an employer or “other person acting on behalf of an employer” who violates California’s wage and hour laws “may be held liable as the employer. These wage and hour violations include unpaid overtime, unpaid minimum wage, denied meal/rest breaks, untimely termination pay, inadequate wage statements, and failing to reimburse employee business expenses.
Unfortunately for employers and their employees, the Labor Code defines “other person acting on behalf of an employer” rather broadly as a “natural person who is an owner, director, officer, or managing agent” of the employer as defined under California Civil Code § 3294, a punitive damages statue.
In analyzing Section 3294, the California Supreme Court instructs that “managing agent” be determined on a “case-by-case basis.” This instruction, however, leaves room for both plaintiffs and defendants to argue their cases. In the broader sense, “managing agent” includes “those corporate employees who exercise substantial independent authority and judgment in their Incorporate decisionmaking so that their decisions ultimately determine corporate policy.”
In the narrower sense, “managing agent” does not cover supervisory employees with “limited decisionmaking authority, but [who] possess the ability to hire and fire company employees.” According to the Court, California’s legislature intended to limit the class of employees whose exercise of discretion could result in an employer’s liability by placing “managing agent” in the same category as “officer” and “director[.]”
Caselaw analyzing Labor Code § 558.1 is sparse which provides companies and employees with little direction as to how a court may interpret an employee’s role for wage and hour violations. A recent case analyzing the liability of a company director, however, is straightforward. The District Court in the Southern District of California found Section 558.1 “specifically provided” for the liability of two company directors.
Although Section 558.1 allows for an employee’s personal liability, California employees will rarely pay for wage and hour violations. California law requires employers to indemnify employees for expenses, including legal expenses generated by claims against them. For an employee to receive indemnification, however, he must have been working within the scope of his employment and believed that in discharging his duties, his actions were lawful. Thus, if a court holds an officer, director, or managing agent liable for unpaid wages, the employer must reimburse that person for his legal expenses.
It may take courts awhile to determine the scope of Section 558.1. In the meantime, employers should familiarize themselves with California’s complex wage and hour laws and evaluate their current practices for compliance. It may be necessary to proactively consult with employment counsel in implementing, overseeing, and reviewing wage and hour practices to ensure compliance with California law.