Question:

I am a shareholder in a company that is quite likely about to go out
of business. I just learned that some of the employees were not paid
overtime wages and that a number of them want to file a court claim.
I am quite concerned about my personal assets in the event the company
does not have enough assets to cover the overtime claim. Can these employees
file a court claim against me personally for the company’s failure
to pay overtime?

Answer:

No. A recent California Supreme Court case has clarified that corporate
agents, including shareholders, acting within the scope of their agency
cannot be held personally liable in a civil action based on the corporation’s
failure to pay its employees’ overtime wages.

In Reynolds v. Bement, the California Supreme Court held that corporate
agents, including officers, directors, and shareholders of a corporation,
could not be held personally liable under California Labor Code Section
1194 (which authorizes civil actions to recover overtime) for their corporate
employer’s failure to pay overtime wages to employees, as long
as the corporate agents were acting within the scope of their agency.

In Reynolds, a former employee of an automobile painting business filed
a civil action per California Labor Code Sections 510 and 1194 for overtime
wages against several individuals who were officers, directors, and/or
shareholders of his former employer. The plaintiff claimed that the defendants
had misclassified employees as being exempt, and had therefore deprived
them of statutory overtime compensation in an effort to maximize profits.
The Court noted there was no express statutory authority or language
in the applicable Wage Order that imposed personal liability on corporate
agents for acts of their corporation. As a result, the Court applied
the common law principle that corporate agents acting within the scope
of their agency are not personally liable for their corporate employer’s
failure to pay its employees’ wages. However, the Court did stated
that if the plaintiff in this case had alleged tortious conduct by the
defendant corporate agents (such as fraud), or other common law and statutory
theories of recovery, the corporate agents could potentially have been
held personally liable on those grounds. In addition, although probably
not applicable to your situation, there is the potential for individual
liability should an employee file a claim with the Labor Commissioner.
Employees of a corporation that perform payroll functions and are responsible
for formulating the policies that lead to the non-payment of overtime
may be held personally liable for fines related to the non-payment.

Despite the individual protections afforded by the Reynolds ruling,
corporate agents should still be careful to avoid overtime pay violations
as the corporation itself may remain liable, and because of the possibility
that a corporate agent could still be held personally liable under alternative
theories.
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