Nonmanagerial Company Owner Wasn't Liable for Wage Violations

A company owner who was not involved in managerial decisions could not be held personally liable for alleged violations of California's wage and hour laws, a California appeals court ruled.

A group of service technicians who installed television satellite systems in homes and businesses brought a lawsuit against the communications company that employed them, alleging wage and hour violations based on their misclassification as independent contractors rather than employees. They also sued the two owners of the company: the onsite owner who ran the company's day-to-day operations and his mother, who lived in Iowa.

Under California Labor Code Section 558.1, which took effect Jan. 1, 2016, the owner, director or managing agent of an employer company may be personally liable for wage and hour violations if that person, on behalf of the employer, "violates or causes to be violated" state wage and hour laws. The trial court dismissed the claims against the absentee owner before the trial, ruling that she could not be found liable under Section 558.1 because she did not participate in the decision to classify the plaintiffs as independent contractors. The court therefore held that she did not violate any state law.

The technicians appealed.

The plaintiffs alleged that the company misclassified them as independent contractors to force them to routinely work seven days a week on long shifts without paying overtime wages. The plaintiffs also claimed that the company did not provide them with meal or rest breaks.

The absentee owner submitted documentation to the trial court showing that she never participated in the day-to-day operations of the company and did not make the company's operational and managerial decisions. She declared that she had never interacted with service technicians and did not participate in the decision to classify technicians as independent contractors. She also said she was never consulted about the classification decision nor had she ever hired any service technicians, determined their payment plans, prepared or issued any schedules, or arranged for equipment to be made available. Nor did she personally pay any service technician from her individual account.

Liability Requires Involvement

The plaintiffs argued that they did not have to establish a direct causal connection between the owner and the alleged wage and hour violations because, under Section 558.1, the owner was potentially liable merely because she was a company owner during the relevant time period.

The appeals court rejected this claim and agreed with the trial court that the owner could not be held personally liable. To be found liable under Section 558.1, the court said, an owner must either have been personally involved in the alleged violations of wage and hour laws or, absent such personal involvement, had sufficient participation in the activities of the employer that the owner could be said to have caused a violation. For example, an owner may have managed the supervisors responsible for alleged wage and hour violations.

Determining if an owner violated wage and hour laws can't rely on any bright-line rule, the court said, noting that the question requires a review of the particular facts regarding the conduct attributable to the owner.

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In this case, the court said, the undisputed facts show that the owner did not participate in the company's decision to classify the plaintiffs as independent contractors, which served as the basis for all the plaintiffs' claims against the company. In addition, the owner introduced evidence that her involvement in the operation and management of the company was extremely limited.

Although she signed loan documents and helped fund the company, she did not participate in the day-to-day operations or make operational and managerial decisions. Those responsibilities fell on the owner's son and his managers, who ran the company and made the decision to classify the plaintiffs as independent contractors.

Usher v. White, Calif. Ct. App., No. D077133 (May 28, 2021).

Professional Pointer: This is the first decision by a California appeals court discussing when a company's owner, director or managing agent can be held personally liable under California Labor Code Section 558.1. Although this was a highly fact-specific inquiry, as this court notes, employers should be aware of this basis for individual liability for violations of wage and hour laws.

Joanne Deschenaux, J.D. is a freelance writer in Annapolis, Md.