California Supreme Court Holds That Individual Managers Are Not Liable For Unpaid Wages.
In Reynolds v. Bement 36 Cal.4th 1075 (2005), the California Supreme Court held that corporate managers generally cannot be held personally liable for unpaid wages allegedly owed to the company's employees. (See link to related entry)
The plaintiffs in Reynolds had filed a class action lawsuit against their corporate employer, alleging entitlement to unpaid overtime because they had been misclassified as salaried-exempt managers. In addition, they also named the company's individual officers, directors and shareholders as individual defendants in the lawsuit. To justify keeping these individuals in the action, the plaintiffs had relied on the legal theory, based on caselaw interpreting the federal Fair Labor Standards Act ("FLSA"), that any person who merely "exercises control" over the employment relationship may be deemed to be an "employer."
The Court rejected this expansive definition of "employer" for purposes of California law, however. It held instead that the obligations of the California Labor Code apply solely to individuals or entities who fit the traditional common law definition of an employer. "Under the common law, corporate agents acting within the scope of their agency are not personally liable for the corporate employer's failure to pay its employees' wages." Id. at 1169. Thus, the Court concluded that the individual managers could be held liable. Id.
As a result of this decision, the vast majority of individual managers are now shielded from personal liable for unpaid wage payments under California law. But several caveats still apply. First, an individual may still be held personally liable under federal law if he or she exercises sufficient control over the employment relationship. Second, certain California statutes include penalty provisions that explicitly apply to culpable individual managers in addition to corporate employers. And, finally, an individual may still be subjected to personal liability for wages if the corporate employer is found to be a mere "alter ego" of the individual.