Why it matters

The California Legislature ended 2015 by enacting a new bill that could significantly impact merger and sales agreements by broadening successor liability for wage and hour violations. Dubbed A Fair Day's Pay Act, the legislation was intended to counter concerns about employer wage theft, establishing bond requirements for employers that fail to pay owed wages to workers. But the new law also permits the Labor Commissioner to look to successor employers for payment where "substantially the same work in substantially the same working conditions under substantially the same supervisors" occurs or the employer "produces substantially the same products or offers substantially the same services, and has substantially the same body of customers." SB 588 further allows individuals to be held personally liable for conduct of an employer, granting the Commission the power to levy accounts or property. Signed by Governor Jerry Brown, the new law took effect on January 1.

Detailed discussion

To address concerns about wage theft, California Sen. Kevin De Leon introduced SB 588, A Fair Day's Pay Act. The bill empowered the state's Labor Commissioner with the ability to use any existing remedies available to judgment creditors to act as a "levying officer" to enforce claims of wage theft.

For example, if a worker successfully brought a wage claim against an employer, the Labor Commissioner now has the power to place a lien on the employer's property or levy the company's bank accounts, including any amounts attributable as attorneys' fees awarded to the employee. These provisions also apply on an individual basis to those who act "on behalf of" the employer. The same remedies are available, meaning that the Labor Commissioner can levy the personal property or bank accounts of a company owner found to have violated state wage law.

To address problems with employers that might close down business and then reopen with a new name in an attempt to dodge debts owed to workers or liens, SB 588 also provided workers with the ability to chase down new entities. However, the changes resulted in significantly broader successor liability for employers.

Specifically, the law now provides for liability for any new business that is "similar in operation and ownership" to the prior employer for the wages owed. A new business will be considered the "same employer" in two situations: if the employees of the successor employer are engaged in "substantially the same work in substantially the same working conditions under substantially the same supervisors" or where the new company has "substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of customers."

The law also requires that in order to remain in business, an employer must post a bond based on the amount of wages at issue, ranging from $50,000 up to $150,000, with potential civil penalties and the possibility of attorneys' fees as well. Employers that fail to post the bond can have their business license revoked.

To read SB 588, click here.