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	Appellate Case Illustrates Pressure to Seize Business Owners' Assets California Executive April 24, 2008 A California Appeals Court has ruled that business owners cannot be held personally liable for back wages in a legal action pursued by California Labor Commissioner Angela Bradstreet. Although the defendants, the owner-operators of three garment manufacturing companies in San Francisco, were vindicated, Bradstreet's dogged pursuit of the case reflects the sincerity of her effort to make it easier for plaintiffs to pierce the corporate veil. "The holding of the case is one that can bring some comfort to California employers provided they've taken steps to protect themselves," says Los Angeles attorney Teresa Tracy, principal with Berger Kahn, A Law Corporation. "Be sure you've organized a recognized business entity to protect yourself from this kind of liability, and be sure to identify that the business entity is the person's employer." The case, Bradstreet v. Wong, involves a business that fell on hard times and was unable to pay wages. Anna Wong, Toha Quan and Jenny Wong collectively promised to pay back wages once more money came in, but complaints from former employees prompted the Department of Labor (DOL) to get involved. After seeking injunctive relief, the DOL effectively shut down the Wongs' business holdings, collectively called the Wins Corporations, leaving them unable to pay the promised back wages. That's when Bradstreet became involved, who filed suit on behalf of the state's Labor Commission to hold the Wongs personally responsible for the unpaid wages. The trial court held for the defendants and Bradstreet appealed the decision. The Court of Appeal in the First District affirmed the lower court's ruling on the grounds that under the definition of "employer" the Wongs could not be held personally liable for the inability of the business to pay wages. Furthermore, the court found that the Wongs did not personally withhold the wages and cannot be expected to pay restitution of the unpaid wages. "The trial court correctly concluded that, under the common law definition, the Wins Corporations, not defendants, were the employers liable for the alleged violations of the Labor Code arising out of the failure of the Wins Corporations to pay its employees," writes Associate Justice William Stein in the published opinion. While the holding in the case doesn't change case law, Tracy says, it underscores the fact that although business owners are not personally liable for business failings, this separation is currently under assault. These types of cases may be more prevalent, she says, as the economic recession makes it more and more difficult for particularly small businesses to make payroll. Since the appellate courts are not budging, she says, additional suits of this nature may urge lawmakers to lower the bar through legislation. "If that's true, then I would not find it surprising if there were a push in Sacramento for legislation that would change the definition [of employer]," Tracy says. "Under the definition of 'employer' in federal law, there can be individual liability." There already is increasing pressure to change the definition of employer in several states in order to make it easier for aggrieved parties to pierce the corporate veil and go after the personal assets of business owners when things go bad. Cases like Bradstreet v. Wong, decided on April 16, may hasten such legislation, Tracy says. Back
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