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California Wage & Hour Violations Can Create Personal Liability


A new California law gives the state labor commissioner expansive new powers to go after employers that have judgments against them for non-payment of wages, including issuing stop-work orders and holding officers personally liable.
The Fair Day’s Pay Act, which took effect Jan. 1, adds a whole new section to the state Labor Code aimed at reducing wage theft and making employers pay for skirting wage and hour laws. Specifically, those violations include:
• Final payment of wages at termination.
• Issuing wage statements.
• Meal and rest break laws.
• Overtime.
• Expense reimbursement.
• Payment of minimum wage.
• Attorney’s fees for complainants.
• Waiting time.

The new law has the potential to increase litigation against employers and it comes at a time when overall wage and hour cases have ballooned 58% between 2013 and 2015. Just between 2014 and 2015, there was a 28% increase in cases, according to Advisen.
The average value for these types of claims in California is $6 million.
While all of these laws are already on the books, the new law gives the labor commissioner new tools to enforce collection of judgments in wage and hour law cases. It adds a whole new level of liability to companies, but equally importantly to the men and women who run these enterprises as they can be held personally liable for judgments.
Some of the new tools at the labor commissioner’s disposal when trying to collect on judgments for non-payment of wages are:
• Issuing stop orders against employers.
• Issuing levies against employers’ bank accounts and accounts receivables.
• Placing liens against an employer’s real and personal property.

The steps for collection under the new law are as follows:
• Twenty days after a judgment is entered by a court in favor of the labor commissioner, or in favor of any employee, the commissioner can move to collect by issuing a notice of levy on a company’s funds, property and accounts receivable.
• If a final judgment against an employer remains unsatisfied after a specified period of time, after the time to appeal has expired and no appeal is pending, the bill would prohibit an employer from continuing to conduct business in this state, unless the employer has secured a bond.
• If an employer is found conducting business in violation of the bond requirement, the commissioner could issue a stop order prohibiting the use of employee labor by the employer until the employer complies with the bond requirement. The law would make the failure by an employer, owner, director, officer, or managing agent of the employer to observe a stop order a misdemeanor.

Officers in the crosshairs
The law also imposes criminal and personal liability against individuals who act for the employer, such as owners, officers, directors and managing agents. Because of this new law, those individuals have potential personal liability for a liability that didn’t exist before.
With this new area of liability opening up, and in light of the boom in wage and hour litigation anyway, it’s important for all employers to consider director’s and officer’s liability insurance and employment practices liability insurance.
Typically, EPLI policies have excluded coverage for unpaid wages and associated fines and penalties. Some insurance companies, though, will carve back a sublimit of coverage for wage and hour claims, but that is usually only for related defense costs.
There are also some novel options available from Bermuda and London insurers that blend a wage and hour policy with an existing EPLI policy. These policies vary in price and are still evolving.
Unfortunately, your typical D&O policy includes an exclusion for wage and hour claims.
But there is an option in specialty products called Side A “Differences in Condition” policies that can be attached to a D&O policy. Differences in condition policies generally don’t include an exclusion for wage and hour claims.
Depending on how the terms of these policies are written, they could include coverage for defense costs and possibly for settlements and judgments in suits that name directors and officers.
As the highly litigious area of wage and hour law evolves, please talk to us to evaluate your coverage and minimize your exposure.
Also, now is the time to revisit all of your wage and hour policies, including breaks and waiting time, to make sure they comply with state law. Don’t get left blindsided by a lawsuit that can bankrupt your company.