Any person who “causes” an employee to be paid” less than the minimum wage set by state or local law is liable for a civil penalty as is any person who “causes to be violated” laws governing overtime pay. The civil penalties can be serious: for first time intention violations: $50 or $100 per underpaid employee per pay period; for repeat offenders, $100 or $250 per employee per pay period. (Lab. Code, §§ 558(a), 1197.1(a).)
The statutes imposing these penalties have been on the books for decades. But a recent California Court of Appeal decision shows they pose a serious risk to officers and managers of small or financially strapped employers. (Atempa v. Pedrazzani (Sept. 28, 2018) __ Cal.App.5th __, 2018 WL 4657860.)
Ordinarily, a corporate officer or employee is not liable for the corporation‘s debts, illegal acts or other wrongs unless the corporation is found to be the officer‘s or employee‘s alter ego. But, the Atempa court held, that is not true under the cited Labor Code sections which unambiguously impose personal liability on any corporate officer or manager who “causes” the employer to pay workers less than the legally required minimum or overtime wage—without any need to prove the corporation is the officer‘s or manager‘s alter ego.
The civil penalties used to be less of a threat when they were recoverable only by the California Labor Commissioner. But these days, an underpaid employee may recover the penalties may sue for civil penalties for all the underpaid workers under the Private Attorneys General Act. (“PAGA”; Lab. Code, § 2699(a).) Also, a PAGA claim cannot be forced into arbitration because it is brought for the government, which receives 75% of the recovered civil penalties. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 381-384.)
Officers and managers of large, financially solvent corporations probably have little to fear, as they will be entitled to indemnity from the corporation for civil penalties they incur through acts in the course of their employment. (Lab. Code, § 2802; Corp. Code, § 317.) But if the employer entity is unable to pay, the civil penalties, and the prevailing plaintiff‘s attorney fees, may be collected from the officer’s or manager‘s personal assets. Directors and officers liability insurance may help, but often the coverage limits are significantly lower for civil fines than for other types of liability.
Pedrazzani, the owner and manager of small corporation ran a restaurant that underpaid its workers, illustrates the risk officers and managers face. After the corporation folded, Pedrazzani was held personally liable for $31,000 in civil penalties plus $315,000 in attorney fees.