California Court of Appeal Holds That Individual Corporate Director Can Be Held Personally Liable for Failure to Pay Wages

On June 28, 2022, the California Court of Appeal issued a decision in Seviour-Iloff v. LaPaille, a case involving unpaid wages. In the opinion, the court held that an individual—the CEO and CFO of the defendant—could be held personally, individually liable for the plaintiffs’ alleged unpaid wages.

In reaching this conclusion, the court analyzed California Labor Code section 558.1, which provides that “any employer or other person acting on behalf of an employer who violates, or causes to be violated” certain provisions of the Labor Code “may be held liable as the employer for such violation.” Section 558.1 defines a “person acting on behalf of an employer” as “a natural person who is an owner, director, officer, or managing agent of the employer.” The term “managing agent” includes corporate employees who exercise substantial independent authority and judgment in their corporate decision making and whose decisions ultimately determine corporate policies.

The Seviour-Iloff court did not reach the question of whether the CEO/CFO actually caused the Labor Code violations at issue in the case. However other courts have considered the appropriate standard for determining whether an individual “causes” a Labor Code violation in a way that triggers liability under Section 558.1 and concluded that the individual must either (1) have been personally involved in the alleged violation, or (2) had sufficient participation in the activities of the employer such that they may be deemed to have contributed to the violation.

For example, in one case, an individual was found to have caused a violation of the Labor Code where he approved the company’s wage policy that was ultimately found to violate the Labor Code.¹ In contrast, another court found that a member of a limited liability company who hired service technicians and whose signature appeared on their paychecks was not personally liable under Section 558.1 because she did not have any responsibility for payroll and never personally prepared paychecks or presented them to workers.²

There is no bright line rule for determining whether an individual is potentially liable for wage-and-hour violations by an employer. Employers who are concerned about officers, directors, and other employees incurring individual liability should contact the attorneys listed on this advisory to discuss their individual situations.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.