254 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com The Court of Appeal, while disclaiming any holding that all nonspecific PTO policies would require payment of “unused” vacation upon termination of employment, upheld a trial court finding of an implied cap: “an employer cannot avoid Section 227.3 by leaving the amount of vacation time undefined in its policy while impliedly limiting the time actually available for approval.”442 The Court of Appeal said that an unlimited PTO plan might avoid final-pay obligations if it was in writing and (1) did not provide for additional wages but rather for a flexible work schedule, (2) specified employee and employer obligations and the consequences for failing to schedule time off, (3) allowed employees to take time off or to work fewer hours instead of taking time off, and (4) was “administered fairly” so it was not a de facto “use it or lose it” policy and so that it did not result in “inequities,” such as where some employees work long hours with minimal time off while others work fewer hours with more time off.443 7.20 Personal Liability for Wage and Hour Violations Unpaid wages. Some employees seeking unpaid wages have sued corporate officials personally. In 2005, the California Supreme Court limited this practice by holding, in Reynolds v. Bement, that corporate officers, directors, and shareholders cannot be personally liable for unpaid overtime wages as an “employer,” even if they exercised control over the payment of wages.444 Reynolds also rejected a theory that the individual defendants were jointly liable for directing or participating in tortious conduct. Reynolds explained: a “simple failure to comply with statutory overtime requirements” does not qualify as tortious. Finally, Reynolds held that the individual defendants could not be liable for “conspiring” with their corporate employer to withhold wages, because corporate agents acting on the corporation’s behalf are not considered to be co-conspirators.445 At the same time, however, Reynolds encouraged plaintiffs not to despair, by speculating as to circumstances where personal liability for unpaid wages could still be possible. First, the Labor Commissioner can continue to use the broad definition of “employer” found in the Wage Orders to seek financial recovery from individuals in administrative hearings.446 Second, in cases of thinly capitalized corporations that have played fast and loose with the corporate form, the “alter ego” doctrine can make controlling individuals liable for unpaid wages. Third, huge civil penalties ($100 per underpaid employee per pay period) could be sought by aggrieved employees under PAGA, against “any person acting on behalf of an employer who violates, or causes to be violated,” a statute or Wage Order regarding wages.447 The Court of Appeal has held that a company’s president, sole shareholder, and director could be individually liable, both as a joint employer and as an alter ego. At issue was a suit by restaurant employees against their former employer, Koji’s, for unpaid wages, inadequate wage statements, and failure to provide meal and rest breaks. Koji’s went out of business, but the employees also sued Arthur Parent, Koji’s president, sole shareholder, and director. The trial court, after a bench trial, rejected the plaintiffs’ contention that Parent was a joint employer. The trial court was concerned that if Parent were held liable because of his control as sole shareholder and president of Koji’s, then all owners of closely held corporations would suffer the same fate. But the Court of Appeal reversed, holding that Parent could be individually liable as a joint employer because he was the “big boss” who hired and fired managers and laid off the employees.448 The Court of Appeal also held that personal liability could be possible on an “alter ego” theory, emphasizing that the theory applies not only when a sham corporate entity is formed to commit a misdeed, but also when the corporate form is used to circumvent a statute or to accomplish some other wrongful purpose.449 Penalties. The “A Fair Day’s Pay Act” added Labor Code section 558.1 to enhance the Labor Commissioner’s enforcement authority to recover civil penalties.450 Under section 558.1, any employer or any “other person acting
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