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Business Operator Individually Liable for Wage & Hour Penalties After Business Goes Bankrupt

October 18, 2018 by

A California Court of Appeal ruled last month that former employees of an Italian restaurant that went bankrupt after trial may recover from the restaurant’s operator civil penalties and attorneys’ fees for wage and hour violations proved at trial.  Atempa v. Pedrazzani (9/28/18).

Paolo Pedrazzani owned and operated Via Italia in Encinitas.  In 2001, he incorporated the restaurant.  In 2015, two former dishwashers of Via Italia won a jury verdict for the restaurant’s failure to pay overtime and minimum wages, and failure to provide meal and rest breaks.  The penalties totaled about $30,000, but the attorneys’ fees awarded to the dishwashers’ attorneys added up to more than $300,000.  The court ordered the incorporated restaurant and Pedrazzani jointly liable for the penalties and attorneys’ fees.  In 2016, the incorporated restaurant declared bankruptcy.  That left the question of whether the employees could still collect from Pedrazzani.

Pedrazzani argued that he should not be held individually liable, as the incorporation of the restaurant was perfectly valid, Pedrazzani did not mix his personal finances with that of the corporation, and Pedrazzani had not acted in an underhanded fashion in relation to the corporation in a way that would justify “piercing the corporate veil” to go after him individually for the corporation’s liability.

But the court rejected all of these arguments.  The court observed that California’s statutory language is quite clear on the point of individual liability for wage & hour violations.  The statute provides that “any employer or other person acting on behalf of an employer who violates, or causes to be violated” the wage and hour laws “shall be subject to a civil penalty.”  The record here showed that Pedrazzani was the person in charge of the payroll decisions for the restaurant, and thus he qualified as an “other person” for purposes of this statute.  The court also concluded that as Pedrazzani was liable for the civil penalties, he was then also liable for the attorneys’ fee award.

Whether the employees and their attorneys will actually be able to collect nearly $350,000 from Pedrazzani remains to be seen, but the case illustrates that unscrupulous employers may not use corporate bankruptcy to escape liability for their wage and hour violations.

The opinion can be downloaded here:

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