If you are an Officer, Director or Manager, a new statute in California might make you personally liable for your company’s Wage and Hour Laws violations. In other words, if your company is out of compliance with any of these laws or regulations, your personal assets including your bank accounts, investments and property may be levied to pay fines, back wages and damages.
Wage and Hour laws and regulations compel employers to comply with minimum wage laws, provide meal and break times, provide applicable overtime pay, and so on. These laws and regulations become more complicated each year and are easily exploited by disgruntled employees, ex-employees and their attorneys.
Compliance with minimum wage laws is more complicated than you might think. The law applies where the employee works, not necessarily where the employer is located. For example: An employer in Santa Clarita (where we are subject to California minimum wage) must pay L.A. County/City of L.A. minimum wage if the employee is working in any unincorporated L.A. County area, or in the City of L.A., for more than two hours in a day. Employers will need to document where their staff is working minute by minute to protect themselves from accusations of jurisdictional non-compliance.
On top of that, some jurisdictions scale up their minimum wages on different dates from other jurisdictions. L.A. County/City of L.A. minimum wages increase annually every July 1st through 2021, but State of California minimum wages change every January 1st through 2023. Minimum wages are also different depending on the number of employees an employer has.
The New Law
Historically, some regulations provided that officers, directors and managing agents could be held personally liable for Wage and Hour violations, but those regulations conflicted with the Labor Code. The California Supreme Court held that where the Labor Code conflicts with Wage Orders, the Labor Code prevails.
The new law, SB 588.1, aligns the labor code with the regulations by adding language to the code making “any natural person who is an owner, director, officer, or managing agent of the employer” liable as the employer. A “managing agent” is, to say the least, not well defined by the statute, but anyone with the authority to hire and supervise is at risk.
Compliance with wage and hour laws and regulations is exponentially more difficult with the addition of jurisdictionally diverse minimum wage laws. Because of this, your personal assets are more at risk than before. Is there any protection available to you?
You may already have statutory indemnification. If you are not an officer, director or partner, employers are obligated by the Labor Code to indemnify you for losses you incur arising from among other things, this new statute. But this only helps as long as your employer has adequate assets to fund the indemnification. If the employer is in bankruptcy, which is likely the case if you are being personally targeted for these violations, it won’t help much.
Officers, directors and employees are allowed to be indemnified by a corporation. You should check to see if your corporation’s structure includes such indemnification. But again, even if you have such indemnification, it won’t help much if the employer has no money.
And, of course, the indemnification provisions only apply as long as you were acting lawfully.
Most Employment Practices Liability and Non Profit Directors’ and Officers’ Liability insurance policies exclude coverage for wage and hour violations. Sometimes these policies offer a limited amount for defense of these claims but you could be on the hook for the judgment, settlement and any fines.
Finally, Insurance coverage for non-indemnified losses is available and can cover you for these losses. The coverage is known as Side A Directors and Officers Liability (Side A D&O). Side A policies are meant to provide coverage where the corporation can’t or won’t indemnify the directors and officers. The coverage is purchased by the employer and is available as a stand-alone policy or as part of a larger D&O policy.
If all of this makes your head spin, don’t worry. We’re here to help. Contact us to discuss coverage options and request a minimum wage schedule for L.A. County/City of L.A. and the State of California. We’ll help you make sense of it all.
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