For those of us running a business in California, we know all about the benefits of doing so — the weather and the sunshine. However, let us also be honest about this: there are few places as difficult or complicated to run a business as California. The legal and regulatory environment creates a labyrinth of laws to navigate as an employer in the Golden State.
While it can be challenging, many laws have been put in place to protect both employers and employees. Among the many critical functions labor laws provide is promoting and protecting a level playing field for all California employers.
Among those of particular importance is Assembly Bill 3075 (California AB 3075) enacted in January of 2021 and in full effect as of January 1, 2022. For employers, the AB 3075 effective date sets forth new laws, adding section 200.3 to the Labor Code. It increases the liabilities of successor businesses, reading in part:
“A successor to a 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, after the time to appeal therefrom has expired and for which no appeal therefrom is pending.”
For employees, this new law is intended to help them collect wages from so-called successor businesses which may face judgments for past payments due through a previous iteration of a particular business. For businesses, the implications are much more complicated.
SUCCESSOR LIABILITY: CALIFORNIA EMPLOYMENT AND UNPAID WAGE CLAIMS
The complex truth is that much is potentially at stake for both employers and employees with successor liability. California’s Legislative Analyst Office (LAO) has documented that approximately 30,000 claims are made each year for unpaid wages with the California Labor Commissioner’s Office. According to the LAO, workers waited 396 days on average for adjudication of their wage claims. These statistics focus only on claims made through the state. Workers can also file complaints for perceived or alleged labor violations through the U.S. Department of Labor or through a superior court lawsuit.
AB 3075 sought to rein in some of these issues and ensure employers are meeting their fair requirements under California labor laws. Under the legislation, an entity’s articles of incorporation or articles of organization must include a declaration that its owners, officers, directors, or members are not affiliated with an employer that has outstanding judgments issued by the California Division of Labor Standards and Enforcement or a court of law for violation of any wage order or provision of the Labor Code.
AB 3075 further requires a ‘successor business’ to a debtor business (which is in receipt of a judgment) to be liable for any wages or damages owed to any of the judgment debtor’s former workforce. To add further clarification to the term “successor”, the new law defines a successor as any business that operates with “substantially the same facilities or substantially the same workforce to offer substantially the same services as the judgment debtor.”
Also included in the new law are provisions requiring businesses to disclose whether owners or managers have had wage judgments made against them. These changes were made to deter businesses from simply “shuttering” only to reopen with a new name but with many of the same staff, offerings, and often even the same location. A 2013 UCLA Labor Center report found that between 2008-2011, out of $282 million granted to workers in legally binding judgments, only 15% of that money was ever received. Three-fifths of those businesses legally “vanished.”
While the statistics show why this safeguard is important for employees, the potentially damaging implications of AB 3075 to honest business owners seeking to comply with the law are many.
ENSURING COMPLIANCE WITH NEW CALIFORNIA LABOR CODE: SUCCESSOR LIABILITY & WAGE THEFT ISSUES
You may think your business is safe. You may think it can’t happen to you. You may think you are doing everything right starting your business the way you always envisioned it. With good intentions, you may not see any potential pitfalls. But what you may not expect can cost you.
As covered in a recent blog on the subject, there has been a wave of new legislation that has tightened laws around compliance and wages, including AB 1003, which greatly strengthens the state’s wage theft law. Any intentional theft of wages in an amount greater than $950 from any one employee in a 12-month period is punishable as grand theft. The bill also recognizes $2,350 in the aggregate from two or more employees as grand theft. Independent contractors are treated as employees for the sake of the new law.
As with AB 1003, AB 3075 is intended to be a deterrent more than anything. However, it does carry significant consequences if an employer is found guilty of violations. Should you be charged or threatened with a lawsuit over employee wages, it is imperative you have the appropriate legal representation. The stress of multiple complicated hearings can be overwhelming but doesn’t have to be. An attorney that has the appropriate education and experience can greatly reduce the amount of stress (and monetary loss) your business suddenly finds itself facing.
Proper Defense Civil Division Founder Justin Vecchiarelli focuses his practice in employment and labor law. His extensive experience has helped businesses of all sizes make sure they are in compliance (and continue to stay in compliance). At Proper Defense, we are uniquely qualified to help businesses navigate the continuously updated requirements of state and federal employment law.
PREVENT COSTLY MISTAKES AND LITIGATION WITH PROPER DEFENSE
As an employer looking to navigate the ever-changing and complex nature of employment law, sound legal advice and representation are often key factors in a favorable outcome for your business. Searching for a ‘small business attorney near me’ you can trust can end here.
For a true advocate that you can rely on, in a judgment-free zone, contact Proper Defense Law Corporation today. For a FREE consultation in the Fresno area, call (559) 825-3800. You can reach us at our Beverly Hills location by calling (424) 284-4066. You can also schedule an appointment online on our Contact Us page. It gets better with Proper Defense, we promise.
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