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  • Kevin Cleveland

Personal Liability of Owners and Managers

Under both State and Federal law, owners and managers of businesses may be held personally liable for a variety of employment and labor law violations under recent decisions and statutory authority. In the field of harassment and discrimination (especially sexual harassment) both State and Federal law allow employees to pursue actions against managers even where the manager is not the person engaging in the harassing behavior, but is an individual who knows or should have known about the conduct and fails to take action to stop it. The same is true under the new ‘abusive conduct’ statutes passed by California.

In addition to these liabilities, owners and managers also face liability under wage and hour laws as a variety of statutes carry specific authorizations allowing actions against “persons acting on behalf (their) employer”. Since an employer is defined under the Labor Code to include “an owner, director, officer, or managing agent of the employer”; employees may now bring actions against the managing person or owner directly as well as against the employing entity itself. This is being done more and more frequently to assure that the company does not simply bankrupt itself or dissolve (in the case of a corporation) in an attempt to leave the employee without recourse. Likewise, corporate laws prohibit the dissolution of corporate entities where there is outstanding liability to employees. Even in bankruptcy, the courts have held that employees may pursue owners and managers separately from the bankruptcy proceeding involving the corporate or business enterprise. In fact, the State Labor Commissioner has issued citations against individual owners where their business has gone bankrupt and has pursued the individual owners of small businesses for personal liability where employees were not paid for a variety of wage claims including unpaid overtime, meal and rest break violations, etc.

Once thought to be a protection against such claims, corporate structures may no longer protect owners against liability when it comes to employees. A better solution is to work towards compliance and ensuring all wage and hour as well as harassment and discrimination laws are being followed with advance counsel by qualified persons.

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