Focused On Business Law

Attorneys Sara Bradley, Marinda Neumann and Lindsay Nakagawa.

Employees Can Be Personally Liable for Wage and Hour Violations Under Both PAGA and the FLSA

On Behalf of | Oct 2, 2020 | Business Law, Employment Law

In a previous article found here, we discuss employer/employee personal liability for wage and hour violations under California Labor Code Section 558.1. In rounding out our discussion on this topic, we investigate California’s Private Attorneys General Act of 2004 (“PAGA”) and the Federal Fair Labor Standards Act (“FLSA”). Both entertain scenarios where individual employees may be liable for wage and hour violations.

California Private Attorneys General Act

PAGA Generally

PAGA provides a way for an aggrieved employee to pursue civil penalties on behalf of himself, other employees, and the State of California Labor and Workforce Development Agency (“LWDA”) for certain Labor Code violations. It essentially allows a private citizen to act as attorney general given he complies with PAGA’s strict notice, filing, and waiting requirements. The LWDA and aggrieved employee(s) split any civil penalties recovered, with the former receiving 75% of penalties and the latter 25%.

Personal Liability Under PAGA? It could happen!

Courts are willing to hold a company’s owners, directors, officers, and managing agents personally liable for wage and hour violations under PAGA. In 2005 Justice Moreno raised the issue in his concurrence in Reynolds v. Bement. He said PAGA “authorizes civil penalties for violations of wage laws that include unpaid wages from ‘any employer or other person acting on behalf of an employer,’ a phrase conceivably broad enough to include corporate officers and agents in some cases.”

A federal court in the Northern District of California minced no words about it and answered the liability question with a resounding “yes.” Plaintiff alleged unlawful and unfair wage and hour practices under PAGA pursuant to Labor Code Section 558 against Cjaders Foods, Inc. (“Cjaders”) and four individual defendants who owned/controlled Cjaders.

Cjaders argued according to PAGA the term “employer” did not include agents, executives or shareholders of an employer. Plaintiff argued because the four individual defendants “were acting on behalf of Cjaders in causing the alleged wage and hour violations[,]” PAGA and Section 558 allowed claims against them.

The court agreed with plaintiff, reasoning as follows: First, PAGA’s Section 2699(a) allows an “aggrieved employee to enforce any provision of the labor code that allows a civil penalty” (as Section 558 does). Section 2699(a) also does not restrict liability to an “employer.” Furthermore, Section 558 of the labor code allows a civil penalty and liability against “an employer or a person acting on behalf of an employee.” Thus, “it does not stretch the plain language of PAGA to find a person who acts on behalf of an employer can be held liable if the [enforceable provision] explicitly permits liability against that person.”

The important distinction to the court was that plaintiff alleged each individual defendant “took specific actions on behalf of Cjaders to violate or cause to be violated wage and hour provisions” rather than just alleging they were liable because they owned/controlled Cjaders. Employers and their employees will not be liable under PAGA simply because they are considered owners, officers, directors, or agents of a corporation, but instead, their actions must violate a wage and hour law or result in a wage and hour violation.

Federal Fair Labor Standards Act

Under the FLSA, officers, directors, and managing agents also face liability for wage and hour violations. In Boucher v. Shaw, for example, the Ninth Circuit found a Chairman/CEO, CFO, and person who handled labor and employment matters could be liable for the corporation’s failure to pay wages under the FLSA. The court stated “[w]here an individual exercises control over the nature and structure of the employment relationship, or economic control over the relationship,” that person is an employer under the FLSA and subject to liability.

So What Should You Do?

Take proactive measures. Make sure that you as the owner, officer, director, manager, or agent of the company understand California and federal wage and hour laws and ensure your employees understand them as well. Have procedures in place to consistently re-evaluate current practices for compliance. Where unclear, consult with an attorney to address your concerns, advise compliant policies, and provide training for you and your employees.