California is not known as the most employer-friendly state from a wage and hour perspective. However, unlike federal courts, California courts have thus far been reluctant to allow claims to proceed against individual managers, officers and directors. Effective January 1, 2016, those high-level employees may refer to that reluctance as “how it was in the good old days.” Tucked away in Section 10 at the end of Senate Bill 588 that Governor Brown recently signed into law is the following:

Section 558.1 is added to the California Labor Code, to read:

  1. Any employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may be held liable as the employer for such violation.
  2. For purposes of this section, the term “other person acting on behalf of an employer” is limited to a natural person who is an owner, director, officer, or managing agent of the employer, and the term “managing agent” has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.
  3. Nothing in this section shall be construed to limit the definition of employer under existing law.

We can expect this addition to have a variety of impacts as the plaintiffs’ bar adjusts to this new tool in their tool kit. Removal of cases to federal courts will become more challenging because the addition of individual defendants may destroy diversity of citizenship, which is often the basis for removal. Challenges of multiple representation (of the employer and individual defendants) that have been present in harassment and other discrimination claims will become more prevalent. As a result, the costs of litigating wage and hour cases in California may increase.

In light of this change, this would be a good time for employers to evaluate their overall compliance strategies and the scope of their directors and officers insurance coverage. A report on other legislative developments will follow.