Friday, August 12, 2005
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Corporation’s Officers and Directors Not Liable for Alleged Wage and Hour Violations, S.C. Rules
By a MetNews Staff Writer
Individual officials of a corporate employer may be not be held liable for knowing and willful violations of state wage and hour laws, the state Supreme Court ruled yesterday.
Justice Kathryn M. Werdegar, writing for a unanimous court, said that Labor Code Sec. 1194, while authorizing ìany employeeì to sue for unpaid wages, does not incorporate an Industrial Welfare Commission regulation that defines corporate officers and directors as employers for certain purposes.
The court rejected a putative class action brought on behalf of employees of the Earl Scheib auto painting companies, alleging that managers and assistant managers were wrongfully classified as exempt from overtime pay requirements.
The complaint also alleged that class members were improperly docked for returned checks and other business losses, and that the company attempted to justify the deductions by requiring them to sign preprinted forms admitting to willful misconduct.
The high court, however, upheld lower court rulings that individual corporate officers who knowingly violate wage and hour laws are subject to criminal and civil penalties, but not to liability in a private action under Sec. 1194.
Werdegar cited a common law rule insulating corporate managers and directors from liability for unpaid wages, and said the plaintiffs failed to show that the Legislature clearly intended that Sec. 1194 abrogate that rule.
The justice also distinguished case law allowing corporate managers to be sued for participating in tortious conduct on behalf of the corporation. The mere failure to pay overtime is not tortious conduct, Werdegar said.
The administration of former Gov. Gray Davis supported the plaintiff in the Court of Appeal, while the Schwarzenegger administration took the defendants’ side in the Supreme Court.
The case was argued in the high court by Brad Seligman of The Impact Fund for the plaintiff and Kathleen M. McDowell of Munger, Tolles & Olson for the defendants.
The case is Reynolds v. Bement, 05 S.O.S. 3836.
Copyright 2005, Metropolitan News Company