Shareholders and Officers of Close Corporations May Be On the Hook for Wage and Hour Violations
A recent unpublished opinion by the California Court of Appeals may change the landscape of joint employer liability for wage and hour violations. Turman et al v. Koji’s Japan Inc., G051871.
In 2010, workers at two Japanese restaurants brought a class action lawsuit on behalf of about 100 hourly employees in Orange County. The workers claimed that the restaurants failed to pay their full wages, unpaid overtime, and missed meal and rest breaks, among other violations. The restaurants closed in 2012. The workers then sued the sole shareholder and officer of the corporation that owned the restaurants on a joint-employer liability theory. The trial court agreed with the defense and denied to certify the class as to the individual owner.
On appeal, the California Court of Appeals said not so fast. The trial judge applied the wrong standard to determine liability and that the judge must go back and re-examine the evidence. The Appeals Court instructed the trial judge to follow the 2010 Supreme Court holding in Martinez v. Combs, S121522 in which laid out a theory for so-called “alter ego” liability for owners of corporations. The Supreme Court held that an individual can be liable as a joint employer “if they suffer or permit another to work; control wages, hours, and working conditions; or engage employees.” So, the Court of Appeals sent the case back to the trial judge to look at the evidence and determine whether the restaurant's sole owner suffered or permitted the employees to work, controlled their wages, hours, and working conditions, or engaged the employees.
REASONS WHY CASE IS SIGNIFICANT
Although this case has not been certified for publication by the Court of Appeals, it still carries some weight going forward. In the future, attorneys representing employees will attempt to impose liability on principals and shareholders of closely held corporations as a joint employer. Ultimately, however, whether someone “suffers or permits” an employee to work is a factual determination. In making this determination, trial courts will look at whether the principal or shareholder had the power to prevent an employee from working. Principals may be found to “suffer or permit” an employee to work if the officer or shareholder has the power to hire and fire his workers, to set their wages and hours, and to tell them when and where to report to work.
Additionally, trial courts will examine whether the principal “directly or indirectly, or through an agent or any other person, employed or exercised control over the wages, hours, or working conditions of any person." This definition has been held to be broad enough to reach through straw men and other sham arrangements to impose liability for wages on the actual employer.
The Court of Appeals has brought some clarity to an otherwise unclear situation. For years, employers and defense attorneys have argued that corporate officers, shareholders, and directors are immune from liability for unpaid wages and other wage and hour violations. This case seems to suggest that you may need to look at a broader view of the facts before dismissing such liability.
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