Successor liability for wage and hour violations broadened in California

Prior to the beginning of this year, the California legislature enacted a new bill that can now significantly impact merger and sales agreements by broadening successor liability for wage and hour violations. The new bill dubbed as A Fair Day’s Pay Act (SB 588)[1] received Governor Jerry Brown’s assent on January 1st and intends to counter any concerns about employer wage theft and establishing bond requirements for employers that fail to pay owed wages to workers.

The SB 588 also empowers the Commissioner to seek payment from successor employers in those cases 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.” [See Section 4 (Addition of Section 238 (e)(1) & (2) to the Labor Code)].

Furthermore, the Commissioner has been vested with the power to levy bank accounts or personal property of a company owner who violates state wage law. [See Section 1 (Addition of Chapter 10 to Division 1 of Title 9 of Part 2 of the Code of Civil Procedure – Section 690.050 (b)]. He can also hold individuals personally liable for the conduct of an employer. [See Section 4 (Addition of Section 238 (f) to the Labor Code)]. The state’s Labor Commissioner can use any existing remedies available to judgment creditors to act as a levying officer to enforce claims of wage theft. [See Section 1 (Addition of Chapter 10 to Division 1 of Title 9 of Part 2 of the Code of Civil Procedure – Section 690.030 (a)].

The bill was initially introduced by California Senator Kevin De Leon addressing concerns about wage theft. In order to combat the problem of employers closing down their business and then reopening it with a new name with intent to dodge debts owed to workers or liens, SB 588 provides workers with the ability to chase down new entities.

In addition to the above, the new law requires an employer who is willing to remain in business to mandatorily post a bond dependent on the amount of wages at issue, ranging from $50,000 up to $150,000 with potential civil penalties and the possibilities of attorney fees’ as well. [See Section 4 (Addition of Section 238 (a) to the Labor Code)]. The changes brought forth by the Legislature will now result in much broader successor liability for employers.