A California appellate court has ruled this month that officers and directors are not personally liable for unpaid wages. In Reynolds v. Bement the plaintiff alleged that his employer misclassified certain employees as "exempt" and not entitled to overtime compensation under California's wage and hour regulations. The plaintiff named the company's officers and directors as defendants, claiming that they were personally liable for the company's purported violations, not only for damages, but also for statutory penalties. The court rejected the plaintiff''s arguments and held that individuals are not generally "employers" as defined by California's statutory scheme relating to overtime pay. As a result, the court held that the individuals could not be held liable for lost wages or for penalties under the state Labor Code. The court went further and concluded that officers and directors are also not liable under a variety of other non-statutory theories often asserted by plaintiffs in wage and hour litigation.

Significantly, the court of appeal decision directly contradicts the opposite conclusion reached by the state Division of Labor Standards Enforcement (DLSE) in a June 2002 opinion letter.

With the prevalence of costly wage and hour class action litigation in California over the last number of years, we expect that this issue may ultimately be resolved by the state Supreme Court. We also expect that there may be efforts in the Legislature to reverse this appellate holding in the event it is not vacated by the high court. Given this uncertainty, the complexity of the laws and regulations relating to wages and hours, and the potential availability of other theories of individual liability not addressed by the court of appeal in this case (including criminal sanctions), officers, directors, and supervisors should not assume that individual liability will never be imposed. Employers and their officers, directors, and supervisors must all remain vigilant to prevent and avoid costly wage and hour violations and resulting claims and litigation.

Joshua R. Woodard is Special Counsel to the firm and practices in the Labor and Employment Practice Group at the San Diego office of Luce, Forward, Hamilton, & Scripps LLP. He can be reached at 619.699.2548 or jwoodard@luce.com.