Individual Officer Can Be Liable for Unpaid Wages

Employment Law


Can a corporate officer be liable for an employer’s unpaid wages to an employee? Yes, a California appellate panel recently determined.

Bridgeville Properties Inc. (BPI) owned property in unincorporated Humboldt County, California, which included eight rental units, a post office and its own water system.

Between 2009 and 2016, Elsie Seviour-Iloff and Laurance Iloff performed various tasks for BPI, such as managing the water system and serving rent notices, in return for free rent.

BPI terminated the Iloffs’ work when it suspected that Laurance was not performing his maintenance jobs, was stealing equipment and supplies from BPI, and was using the water rights for a private venture.

The Iloffs filed claims with the Labor Commissioner alleging that they were each owed $132,880. After a hearing, the Labor Commissioner concluded that the Iloffs were entitled to recover wages, overtime wages, liquidated damages, interest and waiting time penalties.

In addition, the Labor Commissioner found that Cynthia LaPaille, who served as chief executive officer and chief financial officer of BPI during the relevant period, was personally liable for those amounts.

LaPaille and BPI appealed to the Superior Court, where a five-day trial was held. The court determined that the Iloffs were employees of BPI and awarded statutory damages, but it found that BPI’s failure to pay was in good faith, declining to award liquidated damages or to find LaPaille personally liable for BPI’s failure to pay wages.

The Iloffs appealed and the appellate panel reversed as to LaPaille’s individual liability.

Section 558.1 imposes liability on a “person acting on behalf of an employer” who violates the Labor Code. LaPaille contended that the statute did not explicitly authorize a private right of action, as it contains a comprehensive scheme for enforcement by an administrative agency.

The court disagreed.

“Here, there is no exclusive enforcement scheme by an administrative agency,” the court wrote. “While the Labor Commissioner is empowered to enforce California’s labor laws, the Legislature also has provided California employees a private right of action for unpaid wages. Section 1194(a) provides ‘any employee receiving less than the legal minimum wage … is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.’ In doing so, it makes little sense for the Legislature to authorize the Labor Commissioner to enforce actions against individuals but bar such recovery for employees simply because they may opt to pursue a civil action.”

The legislature would not have created individual liability that was effectually unenforceable, the court added, as legislative history demonstrates that lawmakers were concerned with wage theft and enacted various provisions to discourage employers from defaulting on judgments with improvements to collection methods.

“[T]he statutory language achieved these goals by (1) allowing employees to hold certain individuals liable for wage violations; and (2) empowering the Labor Commissioner to assist employees in collecting on the resulting judgments, including against liable individuals,” the panel said. “Accordingly, section 558.1 must be interpreted as allowing for a private right of action.”

While the provision provides discretion with language that “[a]ny employer or other person acting on behalf of an employer … may be held liable,” it grants prosecutorial discretion rather than judicial discretion.

The panel agreed with LaPaille that section 558.1 does not operate retroactively, but found that liability for minimum wages extends back to 2013, when section 1197.1—which first provided for individual liability for minimum wages—was enacted. Section 558.1 represents a procedural expansion of an existing liability, the court noted, leaving LaPaille on the hook.

Remanding to the trial court, the panel reversed as to the denial of individual liability for LaPaille.

“[A]llowing courts to excuse such individual liability would undermine the purpose of Section 558—to facilitate an employee’s ability to recover unpaid wages,” the court wrote.

To read the decision in Seviour-Iloff v. LaPaille, click here.

Why it matters: Containing a warning for corporate officers, the appellate panel found that employees have a private right of action to name individuals in an action alleging wage violations and to hold them personally liable for such violations.

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