Hinshaw's 12 Days of California Labor & Employment Series – Day 5: New Successor Liability for Wage and Hour Judgements

In the spirit of the season—and keeping some semblance of normal—we are using our annual "12 days of the holidays" blog series to address new California laws and their impact on California employers. On this fifth day of the holidays, my labor and employment attorney gave to me: five golden rings and AB 3075.

Existing law requires a corporation and foreign corporation, limited liability company, or foreign limited liability company registered to transact intrastate business to file specified documents disclosing information regarding entity with the Secretary of State, including a statement of information. This contains information regarding the general type of business that constitutes the principal business activity of the corporation or limited liability company. There are currently nine specific items a business must provide. Under AB 3075, the statement of information must also indicate whether any officer or any director—or, in the case of a limited liability company, any member or any manager—has an outstanding final judgment issued by the Division of Labor Standards Enforcement (DLSE) or a court of law for the violation of any wage order or provision of the Labor Code.

More importantly, AB 3075 provides that a successor to any judgment debtor shall be liable for any wages, damages, and penalties owed to any of the judgment debtor's former workforce pursuant to a final judgment. Successorship is established upon meeting any of the following:

• Uses substantially the same facilities or substantially the same workforce to offer substantially the same services as the judgment debtor.
• Has substantially the same owners or managers that control the labor relations as the judgment debtor.
• Employs as a managing agent any person who directly controlled the wages, hours, or working conditions of the affected workforce of the judgment debtor.
• Operates a business in the same industry and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor.

In essence, a business cannot escape its monetary judgment for wage and hour violations by closing a business and starting a new one under a different name that essentially does the same type of business. It also means that a new business owner who buys the business as is—with the same facility and same workforce—will likely be held liable for any wage and hour judgments of the seller. In addition, AB 3075 prevents a business from escaping its monetary judgment for wage and hour violations by selling the business to a family member.

AB 3075 goes into effect January 1, 2022, or upon certification by the Secretary of State that California Business Connect is implemented, whichever is earlier. At that time, businesses required to file a statement of information will need to include information about any wage and hour judgments against them.

Businesses needing to file their initial or annual statement of information as of January 1, 2022, should be prepared to address any wage and hour judgments against any officer or director of the business. It is also recommended that any potential buyer of a business evaluate whether there is a wage and hour judgment against any officer or director of the for-sale business to ensure they will not have successor liability for any prior wage and hour judgments.