SB 588 Creates Personal Liability for Officers, Directors, and Managing Agents of Employers for Wage and Hour Violations

Posted on March 30, 2016

By: Kyle D. Kring.

Senate Bill (SB) 588 known as the “The Fair Days Pay Act” went into effect on January 1, 2016. The bill’s stated purpose was to enhance the Labor Commissioners ability to enforce California Division of Labor Standards Enforcement (DLSE) judgments. Where a worker wins their case before the DLSE, SB 588 gives the California Labor Commission the right to use any of the existing remedies (such as filing a lien or levy) available to a traditional judgement creditor i.e. plaintiff that prevails in a lawsuit, and to act as a levying officer when enforcing a judgement. In addition, it prevents an employer from closing down its business and reopening under a new name in order to avoid their debts to workers.

Unfortunately, tagged on to the end of this lengthy bill, and not discussed in the legislative history, is a standalone provision that creates personal liability for owners, directors, officers and managing agents of employers for wage and hour violations.

Until the passage of SB 588, there was arguably no individual liability under the Labor Code for state wage and hour violations in California, other than under PAGA (Labor Code 2698, et seq). This meant that employees were not permitted to sue individual managers, officers and directors for the company’s violations of provisions of the California Labor Code. SB 588 changed this long-standing rule.

In the very last paragraph of SB 588, a new Labor Code §558.1 was added which, for the first time, creates individual liability for owners, directors, officers, or managing agents of an employer for violations of certain sections of the California Labor Code.

California Labor Code 558.1 provides as follows:

(a) 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 (payment of wages on termination of employment), 226 (paystub reporting requirements), 226.7 (meal period premium), 1193.6 (recovery of attorney fees for lawsuits to recover unpaid minimum wage and/or overtime), 1194 (failure to pay minimum wage for all hours worked), or 2802 (reimbursement of business expenses), may be held liable as the employer for such violation.

(b) For purposes of this section, the term “other person acting on behalf of an employer” is limited to a natural person who is an owner, director, officer, or managing agent of the employer, and the term “managing agent” has the same meaning as in subdivision (b) of section 3294 of the Civil Code.

It will take some time for the courts to determine exactly how Labor Code section 588.1 will be applied and interpreted. For now, it is strongly advised that all employers evaluate their wage and hour compliance and ensure that there are appropriate employment practices, liability insurance and/or directors and officers insurance coverage or excess coverage. For smaller individually owned businesses, simply shutting down and starting a new company may no longer be an appropriate strategy to avoid liability for wage and hour violations.