SEPTEMBER 2005

II. JUDICIAL UPDATE

Officers and Directors Not Liable for Unpaid Overtime Compensation

In Reynolds v. Bement, the California Supreme Court held that corporate officers and directors cannot be held personally liable for unpaid wages or overtime pay owed by a corporate employer in a civil action.

Steven Reynolds (“the Employee”), a manager for Earl Scheib, Inc., alleged a class action lawsuit against eight corporate officers and directors, along with his employer. He sought to hold the officers and directors personally liable for a variety of wage and overtime violations arising from alleged misclassification of non-exempt employees. His theory was that the officers’ and directors’ direct or indirect control over compensation policies makes them “employers” as defined in the applicable Industrial Welfare Commission Wage Order. Therefore, as employers, they were liable for back wages and overtime.

The California Supreme Court rejected the Employee’s claim, holding that unless the Legislature clearly delineated otherwise “ . . . corporate agents acting within the scope of their agency are not personally liable for the corporate employer’s failure to pay its employees’ wages.”

A concurring opinion, however, strongly encouraged the California legislature to amend Labor Code section 1194 to permit unpaid wage claims against individuals. Moreover, the Reynolds decision will likely not impact the Division of Labor Standards Enforcement’s administrative proceedings which permit the naming of corporate agents as joint defendants with corporate employers.

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