The Big Limited Liability Exception for Unpaid Wages: Labor Code Section 558.1

Corporations and LLCs are highly attractive business entities for employers because of their limited liability protection. Generally speaking, this means that the actual shareholders, officers, and directors who operate and own the underlying business are not personally on the hook for the company’s debts and obligations. Rather, the underlying company -as a separate and distinct entity- is responsible for its own debts and obligations.

California has a very large exception to corporate limited liability when it comes to unpaid wages, late paid wages, and other common wage-and-hour violations through California Labor Code Section 558.1. This short but very  powerful law was enacted to combat wage theft by corporate employers who try to terminate their business to evade their obligation to pay wages.

Section 558.1 states that any employer (such as a corporate employer) or other person acting on behalf of an employer may be held liable as the employer for a violation of six of the most common unlawful wage violations. The section goes on to clarify that “other person” means a natural person who is an owner, director, officer, or managing agent of the employer. Thus, individual owners, directors, and agents are on the hook for labor code violations by the corporate-employer.

Some of the most common California Labor Code violations are included within the purview of this new law, exposing actual business owners to liability for a company’s unlawful conduct:

1) California Labor Code Section 203 requires employees to be immediately paid their complete and full wages upon an involuntary termination or within  72 hours of their resignation. If payment is not received within those times the employer and/or the person acting on behalf of the employer, owes a penalty called the “waiting time penalty” equal to a full day’s wages, for up to 30-days.

2) California Labor Code Section 226 requires that employers furnish a semi-monthly pay stub that accurately lists the number of hours worked, the employee’s pay rate, any deductions, and the name and address of the employer.

3) California Labor Code Section 226.7 requires employers to provide non-exempt employees with a paid  ten-minute rest break every four hours, and an unpaid thirty-minute meal break every five hours worked.

4 & 5) California Labor Code Sections 1193.6 and 1194 require that all employees be paid at least a minimum wage and that non-exempt employees be paid overtime if more than eight hours of work are performed in a day or if more than forty hours of work are performed in a single week.

6) California Labor Code Section 2802 codifies that employers cannot pass-off regular costs of doing business onto employees and requires that employers reimburse employees for all necessary employment expenses (i.e. cell phone use, travel expenses, etc.)   

To illustrate the power of this law, imagine the following hypothetical of Jared vs. Acme Mechanics Incorporated, a California corporation. Jared works as an auto mechanic for  Acme Mechanics, Inc. a small California corporation solely owned and operated by Mike, Acme’s CEO. Jared works for Acme, Inc. for a number of months, but Acme, Inc repeatedly delays payment and then stops paying Jared altogether. Acme Inc. then goes out of business without paying Jared any of his  last month’s wages. Jared may file a lawsuit against both Acme, Inc. and also against Mike as Acme’s owner, director and managing agent for his unpaid wages. Mike, the sole owner and CEO may be personally liable under 558.1, even though Acme Mechanics Inc is no longer in business and lacks assets, greatly increasing Jared’s chances of actually recovering his unpaid wages.

Do you have a claim for late or unpaid wages? Contact Law Office of Brian Mathias.

Give Me A Tip: Golden State Employee Gratuities

The practice of giving employee gratuities or “tipping” allegedly originated from the 17th century English practice called “To Improved Promptitude” or “TIP”. As the story goes, bar patrons would slip waiters a coin to speed up delivery of their  drinks. The practice has now changed so that the tip is given at the end of the service and not the beginning. And now, California law has quite a bit to say on the issue of tipping. Here are five things to know about employee gratuities in California.

1. The Gratuity is the Exclusive  Property of the Employee

California law clearly states that the tip belongs to the employee, not the employer,
“Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid…” Labor Code Section 351.

This raises two common legal issues. First, it is unlawful (both civilly and criminally) for the employer to take any part of the tip that was left for the employee. Employers cannot require their employees to share their tips with the employer. One-hundred percent of any tip must go to the employee.

Next, it is legal under specific circumstances for employers to require employees to share their tips with other employees, called “tip pooling”. However, managers, certain supervisors, and owners cannot share in the pooled tips, even  if those persons participated in the table service of the customer.

2. Minimum Wage Must Still Be Paid

People are often surprised to learn that California employees who receive regular tips, such as waiters, must still be paid at least minimum wage before tips. This requirement applies no matter how much  the employee is tipped on a given day. For example, a  waitress could receive $100.00 in tips over the course of an hour and the  employer must also pay at least minimum wage of $10.50 per hour. It is illegal to pay employees exclusively in tips.

California’s employee-friendly tip law is in the minority. Most states and the federal government allow employers to credit or offset the applicable minimum wage if the employee receives tips at work. Furthermore, roughly 40% of the states only require a base wage of just $2.13 per hour for tipped employees; the rest of the wage may come from tips.

3. Employers Cannot Deduct Credit Card Fees

Issues with employee tips increasingly arise as more and more people pay by credit card. Employers are expressly prohibited from deducting any credit card transaction fees from tips. For example, if a customer pays a gratuity of $5.00 and a $20.00 bar tab by credit card, and the employer pays a $1.00 transaction fee to the credit card processor, the employer is not allowed to require the employee to pay the twenty-cent pro rata share of the credit card fees. All of the credit card fees must be paid by the employer.

This law is a good example of how California wage laws can be very favorable to employees and burdensome for employers.

4. Tipped Employees Must (Usually) Get Rest and Lunch Breaks

Tipped employees (like waitresses, hair stylists, bartenders, valets) often work jobs that are classified as “non-exempt”, meaning that the employees are entitled to a paid, duty-free rest break every four hours of  work and an unpaid, duty-free lunch break (called a “meal period”) for every five hours of work. Click here to read an article that explains the difference between “non-exempt” and “exempt” jobs.

In the hustle and bustle of a restaurant, it can be easy for employers to overlook their rigorous obligations to allow for the opportunity for breaks under California law.

5. Employers Can Be Sued For Violations

Employers who even unknowingly violate California’s gratuity laws can face a variety of legal claims. This includes minimum wage violations, tip theft “conversion”, and violation of California’s tip laws. Employers with 20 or more employees who violate these laws may be sued as a part of a class action lawsuit, or under California’s Private  Attorney General Act (called “PAGA” and pronounced “pah gah” by lawyers).

Are you a tipped employee in California? Do you have questions or concerns about how your  tips  are being handled by your employer? Contact the Law Office of Brian Mathias.

Are You Working An Alternative Workweek Schedule?

With very few exceptions, overtime pay must be paid to any non-exempt employee who works longer than eight hours per day or forty hours per week. (Click here to read an article to help determine if you are a "non-exempt" or "exempt" employee.)  

One of the very few exceptions to paying overtime in California is called an Alternative Workweek Schedule.

An Alternative Workweek Schedule is a written agreement between the employer and their employees for the employee to work longer than eight hours per day without paying overtime. The most common type of Alternative Workweek Schedule is called a “Four-Ten” meaning the employee works four, ten-hour days per week instead of five, eight-hour days per week. Under a lawfully enacted Four-Ten Alternative Workweek Schedule the employee is not entitled to any overtime even though that employee worked ten hours in a single day, which under normal circumstances would entitle her to two hours of overtime pay.

Alternative Workweek Schedules are often desired by employees because they create regular three-day weekends. Similarly, employers desire alternative workweek schedules because they can work their employees  for longer stretches on any given work day without paying time-and-a half.

But Alternative Workweek Schedules come with a very big catch. In order to be valid and enforceable, the employer must strictly follow many highly technical procedure requirements to enact a lawful Alternative Workweek Schedule. These requirements can be so technical and complicated that many employers do not implement them correctly and rendering them invalid. Alternative Workweek Schedules cannot be established with a simple handshake. In fact, the requirements are so technical that an attorney is often required to establish a valid and enforceable Alternative Workweek Schedule.

As an example of some of the requirements to enact a valid and enforceable Alternative Workweek Schedule, the employer must schedule an alternative workweek election among the affected employees, draft ballots,  issue pre-election disclosures, hold an election at the worksite during regular work hours, and then report the results of that election to the California Department of Industrial Relations within 30 days.  And these are just some of the requirements.

There are potentially severe consequences for employers who do not follow all the legal requirements for a valid and enforceable Alternative Workweek Schedule. This includes paying overtime pay to every employee who worked under the invalid Alternative Workweek Schedule, as well as interest and wait time penalties on those unpaid wages going back several years.

Are you working a four-ten schedule or other Alternative Workweek Schedule?  Contact the Law Office of Brian Mathias for a free consultation.

Ready to stand up for your rights?  www.brianmathiaslaw.com