Company Belly Up, Who Pays Me?
[headline]Who owes me money if my company goes Bankrupt?[/headline]
The battle lines have been drawn over the question of how the term “EMPLOYER” should be defined. Should the term “EMPLOYER” simply mean only the company that hired the employee which is the old common law definition or should the term “EMPLOYER” take into account broader principles of California Labor Law.
A major case was just decided by the California Supreme Court that established who can be held liable for failure to pay wages. A number of cases were previously heard in which only the company who was the direct employer could be held responsible for any unpaid wages.
There are New Laws that state the real property can be seized to pay employees as well.
There were a number of cases including Reynolds v. Bement (2005) 36 Cal.4th 1075, in which the Court “looked to the common law rather than the applicable wage order to define employment in an action under section 1194 seeking to hold a corporation’s directors and officers personally liable for its employees’ unpaid overtime compensation.” Labor Code section 1194 gives employees the right to recover “the legal minimum wage or the legal overtime compensation.”
The California Supreme Court has ruled on one of the most important wage and hour cases and that is Martinez v. Combs 49 Cal.4th 35 (2010). This case explains who is and who is not an “EMPLOYER” under California wage law and it includes a number of important rulings that will shape California wage and hour practice for years to come as well as California Labor Law in general.
By way of background, the question of who must pay minimum wage or overtime under section 1194 has been addressed only once since 1913, when California passed its minimum wage law. That one decision was Reynolds v. Bement (2005) 36 Cal.4th 1075, in which the Court “looked to the common law rather than the applicable wage order to define employment in an action under section 1194 seeking to hold a corporation’s directors and officers personally liable for its employees’ unpaid overtime compensation.”
The main argument that was put forth in Martinez v. Combs was that the history of section 1194 showed that the legislature intended to give the Industrial Welfare Commission (IWC) the power to define various terms used in the regulations that the IWC had the power promulgate. Within the definition of employer the regulation under Wage Order No. 14, Cal. Code Regs., tit. 8, § 11140, subd. 2(C) use the term defining employer as one who “suffered or permitted an individual to work”. Wage Order No. 14, Cal. Code Regs., tit. 8, § 11140, subd. 2(F) describes employer as one who “exercises control over wages, hours, or working conditions”.
The power of the Industrial Welfare Commission (IWC) to define employment is not expressly granted in the act creating the IWC but merely implied, and thus extends only so far as necessary to permit the IWC effectively to exercise its expressly granted powers to regulate wages, hours, and working conditions. West’s Ann.Cal.Labor Code § 1173 et seq. Therefore regulations issued by an administrative agency such as the Industrial Welfare Commission (IWC) under a delegation of legislative power must be reasonably necessary to effectuate the purposes of the statute. West’s Ann.Cal.Labor Code § 1173 et seq. and therefore has the force and effect of law.
The California Supreme Court stated that in actions under section 1194 to recover unpaid minimum wages, the IWC’s wage orders do generally define the employment relationship, and thus who may be liable. An examination of the wage orders’ language, history and place in the context of California wage law, moreover, makes clear that those orders do not incorporate the federal definition of employment. Applying these conclusions to the facts of the case, the Supreme Court affirmed the Court of Appeal’s judgment.
As set forth in the Supreme Court’s ruling it stated that the Wage Orders set forth a multi-pronged, disjunctive definition of employment: an employer is one who, directly or indirectly, or through an agent or any other person, engages, suffers, or permits any person to work, or exercises control over the wages, hours, or working conditions of any person. The “engage, suffer, or permit” component of the definition does not require a common law “master and servant” relationship, but is broad enough to cover “irregular working arrangements the proprietor of a business might otherwise disavow with impunity.” Phrased as it is in the alternative (i.e., “wages, hours, or working conditions”), the language of the IWC’s ’employer’ definition has the obvious utility of reaching situations in which multiple entities control different aspects of the employment relationship, as when one entity, which hires and pays workers, places them with other entities that supervise the work. Finally, the IWC’s “employer” definition is intended to distinguish state law from the federal FLSA and is therefore controlling.
This case becomes extraordinarily significant in light of the fact that individual company owners cannot hide behind their corporations to shield them from personal liability. The law clearly states that anyone who directly or indirectly permits a person to work or exercises control over that person’s wages, hours or working conditions shall be held personally responsible for the payment of all wages due. This helps to stop those who abuse the labor laws and attempt to deny wages that have been earned. The California Supreme Court has spoken and has upheld the rulings By the California Industrial Welfare Commission which broadly defines who shall be treated as the employer.
If you have any questions with regard to your rights is important that you seek the help of a San Jose Labor Law Attorneys that your rights will be fully protected.
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