Litigating California Wage & Hour and Labor Code Class Actions

The plaintiffs attempted to justify suing individual officers for damages by invoking the expansive
definition of “employer” contained in the IWC Wage Orders. The defendants responded that to the
extent anything in the Wage Orders could be read as creating individual liability for failure to pay
overtime, such pronouncements are void in that they would exceed the scope of the Labor Code,
which authorizes the IWC to adopt only regulations “consistent with” the Labor Code. 517
In 2005, the California Supreme Court largely adopted the defendants’ position, holding that under
general common law principles of managerial immunity, managers are not liable for the corporate
employees’ failure to pay wages. The Court found nothing in the plain meaning of the relevant
Labor Code sections or in public policy to read individual overtime liability into the overtime
statute. 518 The Court left the door open, however, to the recovery by an employee of statutory
penalties from individual supervisors, such as the recovery of Section 558 penalties through a
PAGA claim. 519 Moreover, the Court reaffirmed that a manager might be held liable under an alter
ego theory if the employee proves the elements for this common law liability theory. 520
In 2010, the Supreme Court backtracked on its decision in Reynolds when it issued its ruling in
Martinez v. Combs. 521 There, the Court held that “[i]n actions under section 1194 to recover unpaid
minimum wages, the IWC’s wage orders do generally define the employment relationship, and thus
who may be liable.” 522 The Court noted that the Wage Orders set forth a multi-pronged, disjunctive
definition of employment: an employer is one who, directly or indirectly, or through an agent or any
other person, engages, suffers, or permits any person to work, or exercises control over the wages,
hours, or working conditions of any person. 523 The “engage, suffer, or permit” component of the
definition does not require a common law “master and servant” relationship, but is broad enough to
cover “irregular working arrangements the proprietor of a business might otherwise disavow with
impunity.” 524 Further, “phrased as it is in the alternative (i.e., wages, hours, or working conditions),
the language of the IWC's 'employer' definition has the obvious utility of reaching situations in which
517
518
519
520
521
522
523
524
other person acting either individually or as an officer, agent, or employee of another person” who fails to pay the
minimum wage); Lab. Code § 210 (imposing a fine on “every person” who fails to make payments on paydays as
required by §§ 204, 204b, and 205); Lab. Code § 215 (imposing criminal liability against “[a]ny person, or the agent,
manager, superintendent or officer thereof” who violates statutory requirement to post a notice identifying when and
where pay is made); Lab. Code § 1175 (imposing criminal liability on “[a]ny person, or officer or agent thereof” who fails
to make certain kinds of work records and to make those records available to state inspectors).
Lab. Code § 517(a).
Reynolds, 36 Cal. 4th at 1087.
Id. at 1089.
Id.
Martinez v. Combs, 49 Cal. 4th 35 (2010).
Id. at 52 (emphasis added).
Id. at 57.
Id. at 58.
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