©2024 Seyfarth Shaw LLP www.seyfarth.com 2024 Cal-Peculiarities | 255 oversight of the company’s operations or some influence on the corporate policy that resulted in Labor Code violations.”473 Some courts, however, have found no liability for owners. In one case, service technicians for television satellite systems brought a class action lawsuit against their LLC employer and an LLC member, claiming they were misclassified as independent contractors. The Court of Appeal ruled that the individual defendant was not personally liable under section 558.1 because she did not qualify as an “owner” under the statute. In order to be liable as an “owner,” the individual defendant must have been “personally involved in the purported violation.”474 If there was no such finding, then she must have had “sufficient participation in the activities of the employer,” such that she could have been ”deemed to have contributed to” the violations. The Court of Appeal concluded that although the LLC member signed class member paychecks, this did not give rise to the inference that the LLC member’s involvement with the employer contributed to the alleged misclassification violations. Recently, in upholding both a private right of action and individual liability under section 558.1, the Court of Appeal interpreted the statute as reflecting the Legislature’s intent to convey that discretion to prosecute an individual under the statute (even where the employer can satisfy any judgment) rests with the party prosecuting the claim, and not with the court.475 The Court of Appeal reasoned that “the party prosecuting the wage violation may not need to pursue such liability in the event the employer satisfies any outstanding judgment.”476 This, however, does not mean that the employee must limit whom she seeks a judgment against in litigation.477 “Conversion” is not a viable theory of recovery. In 2019, the California Supreme Court did push back a bit on personal wage-and-hour liability by rejecting tort claims for conversion as a basis for seeking unpaid wages from an individual.478 Alter ego. In 2020, the Court of Appeal upheld a judgment of almost $500,000 for unpaid wages, attorney fees, and costs against a couple who owned a small travel company.479 These individual owners were found to be personally liable as alter egos. The Court of Appeal explained that the alter ego doctrine arises when individual defendants have used “the corporate form unjustly and in derogation of the plaintiff’s interests. In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation.”480 Alter ego liability depends on (1) “such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist” and (2) whether “adherence to the fiction of separate existence would, under the circumstances, promote fraud or injustice.”481 Here, it was critical that the individual owners commingled personal and corporate assets, using corporate funds to pay their personal rent and using personal funds to pay the plaintiff’s salary. The evidence supported a finding of alter ego even though there was no evidence that the business was undercapitalized or was a mere shell or conduit for the individual defendants’ personal business. Garment industry. As of January 1, 2022, “Brand Guarantors”—companies sitting atop the garment supply chain—are liable for wage violations committed by their garment manufacturing suppliers, even if the ultimate seller of the garment has been completely unaware of any violation.482 In other words, clothing “brands” and holding companies—and even retailers—could now be jointly liable with the contractors from whom they purchase t-shirts, hats, or even belts to sell for the contractor’s wage and hour violations, and perhaps even for violations by the contractor’s subcontractor. Prudent employers might have their garment manufacturing vendors audited for wage and hour compliance.
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