Court Opinion

ID: 9785422
Source: CourtListenerOpinion
Date Created: 2023-08-30 21:41:07.566858+00
Date Added: 2024-06-11T07:36:22.113181
License: Public Domain

MORENO, J.
I concur.
In Labor Code section 1194, the Legislature has given workers a private right of action to recover unpaid overtime wages without specifying who is liable. (Lab. Code, § 1194.)1 Liability logically should attach to the person or entity owing the unpaid overtime wages—the employer—but neither in section 1194 nor in other relevant provisions of the Labor Code (e.g., §§ 500, 510) has the Legislature defined “employer” for purposes of section 1194.
Faced with this lacuna in the Labor Code, plaintiff would look to the definition of “employer” in wage orders promulgated by the Industrial Welfare Commission, the administrative agency to which the Legislature has granted plenary power to formulate regulations governing employment in California. (Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 561 [59 Cal.Rptr.2d 186, 927 P.2d 296].) As defined in the relevant wage order for purposes of this case, an employer is any individual “who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” (Cal. Code Regs., tit. 8, § 11090, subd. (2)(F).) Armed with this definition, plaintiff *1093contends liability for unpaid overtime wages extends to certain corporate officers and agents who meet the “exercises control” standard.
As a legal argument, plaintiff’s position is not untenable, but it has a certain labyrinthine quality that, ultimately, cannot conceal the absence of any clear indication of legislative intent that the wage order’s definition of “employer” apply to section 1194 actions. Therefore I concur with the majority. I write separately to bring this issue to the Legislature’s attention.
The underlying question in this case is whether, under certain narrowly circumscribed conditions, workers should be able to sue corporate officers and agents for unpaid overtime wages where the corporate form is being misused to defraud workers of these wages. Relevant to consideration of this issue is our recent observation in Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 340 [17 Cal.Rptr.3d 906, 96 P.3d 194]: “Labor Code section 1194 confirms ‘a clear public policy . . . that is specifically directed at the enforcement of California’s minimum wage and overtime laws for the benefit of workers.’ ” It also bears repeating that overtime pay “relates but incidentally to wages” and that the underlying purpose of the wage laws “concem[s] not only the health and welfare of the workers themselves, but also the public health and general welfare.” (California Grape etc. League v. Industrial Welfare Com. (1969) 268 Cal.App.2d 692, 703 [74 Cal.Rptr. 313].) In other words, the public as a whole has a stake in enforcing the overtime wage law and creating deterrents to violations of that law.
The abuse of the corporate form to avoid paying overtime wages is well documented, as is the identity of the workers who are most often the victims of this abuse. “Increasingly, employers are incorporating instead of operating as sole proprietors or partnerships. As corporations go out of business, the sole shareholders or majority shareholders are protected from personal liability for the debts of the corporation, including wage debts, even though they profit from the unpaid labor of workers.” (Foo, The Informal Economy: The Vulnerable and Exploitable Immigrant Workforce and the Need for Strengthening Worker Protection Legislation (1994) 103 Yale L.J. 2179, 2201.) “Employers faced with large wage judgments often play the ‘shell game’—that is, they close down one corporation and start up another. The corporate shield of limited liability protects shareholders, directors, and officers from personal liability for the wages of their former employees. Former employees are unable to reach the assets of the new corporation or company because of the legal fiction that the predecessor and successor are separate legal entities.” (Id. at p. 2189.) The workers most often affected by these abuses are low-wage workers, often non-English-speaking immigrants in the garment, restaurant, electronics, and agricultural industries. (Id. at p. 2209.) The amicus curiae brief of the Division of Labor Standards *1094Enforcement describes such a case, involving three defunct garment contractors, all closely held corporations owned by members of a single family. The business failed to pay any wages to more than 250 employees over a two-month period in 2001, even as the officers and sole shareholders encouraged their employees to continue working with false promises of eventual wages. (Lujan v. Wong et al. (Super. Ct. S.F. City and County, 2002, No. 404939).)
The exploitation of such vulnerable workers by unscrupulous individuals hiding behind the corporate form takes place against a backdrop of diminished public resources for the enforcement of the state’s labor laws. The Legislature itself has acknowledged this problem in the uncodified portions of section 2698, the Labor Code Private Attorneys General Act of 2004 (the Private Attorneys General Act), wherein the Legislature states: “Staffing levels for state labor law enforcement agencies have, in general, declined over the last decade and are likely to fail to keep up with the growth of the labor market in the future.” (Stats. 2003, ch. 906, § 1, subd. (c).) This recognition was, indeed, a spur to the enactment of the Private Attorneys General Act which, in time, may provide workers with a mechanism for recovering unpaid overtime wages through private enforcement of section 558, which authorizes civil penalties for violations of the wage laws that include unpaid wages from “[a]ny employer or other person acting on behalf of an employer,” a phrase conceivably broad enough to include corporate officers and agents in some cases. (§ 558, subd. (a).) The Private Attorneys General Act remains, however, untested at this point.
Section 1194, by contrast, is an established remedy directed specifically at the recovery of unpaid overtime wages. Given the Legislature’s stated commitment to the enforcement of the state’s labor laws, and its willingness to entrust enforcement of those laws, in some cases, to workers themselves, it would make sense for the Legislature to extend the reach of section 1194 to include individuals who are directly responsible for the nonpayment of overtime wages but who hide behind the corporate form. Permitting workers to recover unpaid overtime wages from corporate officers and agents in some limited circumstances is neither a novel nor an untested remedy. As plaintiff and various amici curiae point out, the federal equivalent of section 1194 contained in the Federal Labor Standards Act (FLSA) has long given workers this right under a definition of “employer” that includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” (29 U.S.C. § 203 (d).) In construing this language, federal courts apply a standard that looks, not simply at the corporate form, but also to the underlying economic reality of whose hand is on the tiller when it comes to payment (or nonpayment) of overtime wages. (See, e.g., Donovan v. Agnew (1st Cir. 1983) 712 F.2d 1509, 1514 [under the “economic reality” approach, *1095corporate officers with significant ownership interest who exercised “operational control of significant aspects of the corporation’s day to day functions” including employee compensation and “who personally made decisions to continue operations despite financial adversity” are employers within the meaning of the FLSA and “chargeable with personal liability for failure to pay minimum and overtime wages as required by the FLSA”].) Taking a leaf from federal law, the Legislature could similarly authorize section 1194 actions against such individuals. I urge the Legislature to do so.
On September 7, 2005, the opinion was modified to read as printed above.

All further statutory references, unless otherwise specified, are to the Labor Code.