Effective January 1, 2016, California employers face a Labor Commissioner with significantly enhanced authority to enforce judgments for unpaid wages under California’s Fair Day’s Pay Act.
The new law seeks to prevent “wage theft” by authorizing the Labor Commissioner to issue stop work orders against employers (and successor employers) who have judgments against them for nonpayment of wages, to issue levies against employers’ bank accounts and accounts receivable, and to place liens against employers’ real and personal property.
The law also imposes criminal and personal liability against certain individuals acting on behalf of an employer, including owners, officers, directors, or managing agents, for various Labor Code violations. The law’s key provisions are highlighted below.
Cessation of Operations: Bond Requirement
An employer that fail to satisfy a final judgment for nonpayment of wages 30 days after the time to appeal has expired (and where no appeal is pending) must cease operations, unless it has obtained a bond (depending on the amount owed, from $50,000 to $150,000) and filed a copy of the bond with the Labor Commissioner. Bonds must be maintained until all judgments are satisfied.
Upon receiving notice of an unpaid judgment by a predecessor employer, a successor employer will be “deemed” the predecessor employer and subject to the bond requirements if:
- the successor’s employees are engaged in substantially the same work and under substantially the same working conditions and supervisors as the predecessor; or
- the successor has substantially the same production process or operations, produces or offers substantially the same products or services, and has substantially the same customers as the predecessor.
The Labor Commissioner can impose a $2,500 civil penalty for failure to comply with this provision against an employer and “any other person acting on behalf of an employer.” Employers that fail to pay a civil penalty shall be subject to additional penalties, up to $100,000.
Cessation of Operations: Stop Work Orders
The Labor Commissioner may issue a stop work order to employers conducting business in violation of the bond requirements. Employers must pay employees affected by any ordered work stoppage for up to 10 days’ lost time. An employer, owner, officer, director, or managing agent who fails to comply with a stop work order is guilty of a misdemeanor punishable by imprisonment of up to 60 days or by a fine not exceeding $10,000.
Levies and Liens
The law authorizes the Labor Commissioner to use any existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment for unpaid wages. Thus, if an employee brings a successful wage claim against an employer, the Labor Commissioner can levy on the employer’s bank accounts, accounts receivable, or other intangibles and can place a lien against an employer’s real or personal property for the full amount of wages, interest, penalties, and attorneys’ fees (if applicable).
The law also imposes individual liability on owners, officers, directors, or managing agents of an employer in the same manner as the employer for violations of any provision regulating minimum wages or hours and days of work in any state Industrial Welfare Commission (IWC) Wage Order, or the following sections of the Labor Code:
- waiting time penalties (Section 203),
- itemized wage statements (Section 226),
- providing rest, meal and recovery periods (Section 226.7),
- actions to recover unpaid minimum wages and overtime (Sections 1193.6 and 1194), or
- expense reimbursements (Section 2802).
California employers and business owners face costly new liabilities for failing to comply with California’s many wage and hour laws. Employers should review their wage and hour policies and practices to ensure that they are legally compliant.
Further, employers should consider training managers and supervisors on the need to comply with California’s wage hour laws and the risk of individual civil and criminal liability if they fail to do so.
Employers engaged in corporate transactions should consult experienced counsel on the implications of the successor liability provisions of this new law.