10.26.2022 | Newsletters

Individual Liability for Overtime Wages

By Charles R. Hellstrom
Employment law

On January 1, 2016, California enacted California Labor Code section 558.1, which states:

“Any employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may be held liable as the employer for such violation.”

However, the language of section 558.1 leaves many things unclear, including: 1) whether section 558.1 provides a “private right of action” for employees to pursue this personal liability through a lawsuit; 2) the factors that determine whether an individual “caused to be violated” one of the Labor Code sections; and, 3) whether the court has discretion to determine whether to impose individual liability under section 558.1.

Recently, the court provided some clarity in Seviour-Iloff v. LaPaille (2022) 80 Cal. App. 5th 427. In Seviour-Iloff, the plaintiff employees proposed and then entered into an employment agreement where they would receive free rent instead of wages in exchange for their labor. After the employees sued their employer as well as its CEO/CFO for unpaid wages and Labor Code violations, the court confirmed, among other things, that Labor Code section 558.1 does provide a private right of action for employees to pursue the enumerated Labor Code violations against their employer’s managing individuals. The court also found that section 558.1 does not provide courts with discretion as to whether to impose individual liability, explaining that the use of “may” in section 558.1 does not give the court discretion whether to find personal liability under the statute. Instead, it gives the employee the discretion to pursue wages from the individuals, if the employees are unable to collect from the employer.

In addressing whether the individual defendant “caused” the Labor Code violations, Seviour-Iloff cited to Usher v. White (2021) 64 Cal. App. 5th 883, 894. In Usher, the court clarified that to be found liable under section 558.1, “an owner must either have been personally involved in the alleged Labor Code violations or, absent such personal involvement, had sufficient participation in the activities of the employer such that the owner may be deemed to have contributed to, and thus for purposes of the statute, caused a violation.” The court gave as an example that an owner may have managed the supervisors responsible for alleged wage and hour violations. The court clarified that there is no “bright-line rule” for determining liability under section 558.1, and that it requires a review of the particular facts of each case.

In Espinoza v. Hepta Run, Inc. (2022) 74 Cal. App. 5th 44, the court applied a similar analysis, concluding that in order to “cause” a violation of the Labor Code and become liable under section 558.1, an individual “must have engaged in some affirmative action beyond his or her status as an owner, officer or director of the corporate employer.” The court noted that this “does not necessarily mean the individual must have had involvement in the day-to-day operations of the company, nor is it required the individual authored the challenged employment policies or specifically approved their implementation.” Rather, “to be held personally liable, he or she must have had some oversight of the company’s operations or some influence on corporate policy that resulted in Labor Code violations.”

Any executives, owners, or individuals who are involved in management of employees or payment of wages are potentially personally liable for Labor Code violations under section 558.1. Strict compliance with California’s ever-changing wage and hour laws is more important than ever.

Related practice team: Labor and Employment

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