California Court Finds Individual Liability Under Joint Employer Theory

On February 20, 2009 in Ontiveros v. Zamora, the court held that the plaintiff stated a viable claim for individual liability under a joint employment theory for violations of state wage and hour laws.

The court agreed with defendants that a corporate officer could not be held liable for the wage and hour violations of a corporation based on the individual's status alone, including the fact that he owned or otherwise controlled the corporation as was the case here. The court acknowledged California courts have consistently held that individual officers, directors, shareholders, and managers of a corporation cannot be considered personally liable for the corporation's failure to pay wages to employees or for related California Labor Code violations. See, e.g., Reynolds v. Bement, 36 Cal.4th 1075 (2005); Bradstreet v. Wong, 161 Cal.App.4th 1440 (2008). The rationale has been that that none of the Labor Code sections at issue expressly define the term "employer." Rather, the courts have applied the common law definition of "employer," which does not include corporate agents acting within the scope of their agency.

However, distinguishing this case from others where the individual was not held liable for wage and hour violations, the Ontiveros court held that the plaintiff pled sufficient facts to support a finding that the individual defendant is a joint employer. Under California law, whether an individual or entity is the joint employer of an employee depends on a factual inquiry into the "totality of the working relationship of the parties," rather than application of an exacting test such as the interference or economic realities tests. Vernon v. State, 116 Cal.App.4th 114, 125 n. 7 (2004). Instead, the court considers the nature of the parties' relationship, with emphasis on the extent to which the employer controls the manner in which the employee performs his/her job duties. Other factors include whether there is an arrangement between the employers to share the employee's services, whether one employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or whether the employers are deemed to share control of the employee, directly or indirectly, because one employer controls the other employer, or each of the employers are under common control. Courts have found myriad facts to be relevant to this analysis, such as whether the employer pays wages/taxes, owns the necessary tools/equipment, and has authority to set wages, hire, train, fire, or discipline.

For purposes of the motion at issue, the court considered the facts alleged in the plaintiff's second amended complaint as true. The court held that the plaintiff alleged enough facts to show that the individual defendant was the joint employer of the plaintiff sufficient to avoid dismissal. Specifically, the plaintiff alleged that the individual defendant:

  • Exercises control over the labor practices of the defendant auto group, which is comprised of the 14 automobile dealerships where plaintiff and the purported class members are/were employed;
  • Set up an elaborate scheme of corporations, but all employees were managed and employed as though it were one business operated by the individual defendant;
  • Owns and serves as president, vice president, secretary, and/or chief financial officer of all the dealerships;
  • Operates under a principal/agency relationship such that the dealerships aided and helped cause the violations;
  • Designed, controlled, monitored, maintained, and enforced the labor policies for all of the dealerships; and
  • Engaged in a common course of conduct in violation of state and federal law.

The consequences of joint employment are extremely significant. For example, if an individual and a corporation are found to be joint employers, they are jointly and individually responsible for compliance with all of the applicable wage and hour requirements during the entire workweek, including those pertaining to the payment of minimum wage, the payment of overtime compensation, and the record keeping requirements. If a corporation is insolvent, courts will look to the individual to cover the wages owed to the employees.

In addition to joint employment liability, the court also noted that the individual shareholders, officers, directors, and managers of a corporation may be individually liable for civil penalties under Labor Code section 558.

In order to avoid exposure under this theory, we recommend that owners and officers of companies assign authority for control of compensation and other labor policies, making employment-related decisions, implementing and monitoring compliance with policies and procedures, etc., to another non-owner of the business or outsource these functions to a third-party human resource firm or third-party paymaster.

This article was authored by Michele Z. Stevenson.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.