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Non-Exempt Employee Entitled to Overtime, Penalties and Attorney's Fees According to CA Court

Non-exempt employees in California are entitled to be paid at least the minimum wage for all hours worked and overtime pay for all hours that they work beyond eight in a day or 40 in a week. When employers fail to comply with the state and federal wage and hour laws, the employees may recover the money that they are owed by filing wage and hour claims. In Kao v. Joy Holiday , Cal. Ct. App. Case No. A157886, the court reviewed a case in which the trial court ignored the legal entity structure of a corporation to reach the personal assets of its shareholders when a worker was misclassified as an exempt employee and was not paid what he was owed.

Factual and Procedural Background

Ming-Hsiang Kao is a resident of Taiwan. In 2009, he accepted a job offer to work at Joy Holiday that was extended by the company's owners, Jessy Lin and Harry Chen. Lin and Chen were a married couple, and Chen served as Joy Holiday's CEO while Lin served in other authoritative roles. The closely-held corporation operated Chinese-language guided tours in California and China for tourists. Kao was hired to work as a computer systems administrator at an agreed-upon rate of $29.63 per hour for a minimum of 20 hours per week.

Kao came to the U.S. on a tourist visa and was given a place to live in Lin and Chen's home. After he arrived, they applied for an H-1B visa. Before the visa was approved, Kao worked for Joy Holiday and was paid $1,700 net from a gross monthly amount of $2,500. The couple deducted $800 per month for Kao's rent. During this time, Lin and Chen characterized these payments in several ways. However, Joy Holiday's chief financial officer characterized the payments as salary payments.

Kao received his H-1B visa in Feb. 2010 and started working as Joy Holiday's office manager. The employment contract stated he would earn a salary of $2,500 per month for working at least 20 hours per week. Kao worked around 50 hours per week. Lin and Chen continued to deduct his rent from his paychecks. His rent was reduced to $600 per month, so his monthly earnings were $1,900.

Lin and Chen demoted Kao to a non-managerial role in Jan. 2011 and reduced his salary to $2,000 per month. Even though he moved into a different apartment, Lin and Chen continued to deduct $600 rent payments from his checks through April 2011. He was fired from his job in May 2011. Kao filed a wage and hour lawsuit against Joy Holiday, Lin, and Chen under state and federal minimum wage and overtime laws. After a bench trial, the trial court rejected Kao's statutory wage and hour claims but found that he was entitled to his unpaid wages under a quantum meruit theory. Kao appealed, and the appeals court reversed the decision. The appeals court found that Kao was a statutory, non-exempt employee and was entitled to recover on his statutory wage and hour claims. The appeals court found that Kao had worked 50 hours per week from Feb. 2010 to May 2011. It asked the trial court to determine the hours that he worked from March 2009 to Feb. 2010 and to compute the amount he was compensated.

At the second bench trial, Kao testified about his compensation. Both sides agreed to allow the court to refer to the trial exhibits from the first trial and waived opening statements. They each submitted trial briefs and written closing statements. The defendants did not present any additional evidence at the second trial.

The trial court ordered Joy Holiday, Lin, and Chen to pay Kao $481,088.94 for violations under Labor Code §§ 1194 and 1194.2 for attorney's fees, unpaid wages, and costs. The court also found that it was appropriate for Lin and Chen to be personally liable together with Joy Holiday under an alter ego theory. Lin and Chen filed an appeal, arguing that the court erred in finding that they were alter egos of the company.

Issue: Whether the Owners of Joy Holiday Were the Company's Alter Egos and Thus Personally Liable for the Plaintiff's Unpaid Wages, Attorney's Fees, and Costs?

On appeal, Lin and Chen argued that they were not alter egos of Joy Holiday and that the trial court erred when it held them to be personally liable for Kao's unpaid wages, legal costs, and attorney's fees. They argued that the court should not have pierced the corporate veil to reach their assets and that Kao's sole recourse should be against Joy Holiday.

Rule: Under the Alter Ego Doctrine, the Court Can Disregard a Corporation's Entity Structure and Hold the Shareholders Personally Liable When the Corporate Structure Is Abused to Disregard the Plaintiff's Rights

The corporate entity structure normally protects the personal assets of the individual shareholders from liability when a lawsuit is filed against a corporation. However, the alter ego doctrine allows courts to ignore the entity structure and to reach the personal assets of individual shareholders when they have abused the legal entity structure to violate the rights of the plaintiff.

Analysis

Under California's wage and hour laws, non-exempt employees are entitled to be paid at least the minimum wage for all of the hours that they work and to receive overtime compensation for each hour worked above eight hours in a day or 40 in a week.[2] These rules do not apply to exempt, salaried professionals. However, some companies try to misclassify workers as exempt, salaried professionals when they should be classified as non-exempt employees.

In Kao's case, Lin, Chen, and Joy Holiday misclassified him as a salaried professional who was exempt from the minimum wage and overtime requirements of the state and federal wage and hour laws. The court found that he was a non-exempt worker who was entitled to receive at least the minimum wage and overtime pay.

Under Turman v. Superior Court , 17 Cal.App.5th 969 (2017), invoking the alter ego doctrine is proper when the following two conditions apply:

  • There is such a unity of ownership between the shareholders and the corporation that there is no separation.
  • Viewing the corporation as a separate entity would promote injustice or fraud.

In making its determination, the court considers multiple factors, including commingling of funds, whether the shareholders are family members, whether the shareholders treat the corporation's assets as their own, and whether the corporation was used as a shell to secure services or payments, among others.[3]

The appeals court said that it upholds a trial court's finding of alter ego liability when it is supported by substantial evidence. Lin and Chen did not challenge the trial court's finding of facts. Instead, they argued that alter ego liability was inappropriate based on the allegations that were made. They argued that the trial court based its finding of alter ego liability only because Lin and Chen owned all of the shares of Joy Holiday and made all of the company's management decisions. They argued that these factors were not enough to support a finding of alter ego liability.

The court found that Lin and Chen's arguments were meritless. It affirmed the trial court's decision.

Conclusion

The appeals court affirmed the trial court's order and awarded Kao the judgment that had been issued against Joy Holiday, Lin, and Chen. The appeals court also awarded him his costs on appeal.

Get Help From a Los Angeles Employment Law Attorney

When a corporation is used by the shareholders to violate the employment rights of its workers, a court might ignore the legal entity structure to allow a plaintiff to reach the personal assets of the individual shareholders. If you have not been paid all of the money that you are owed for your work or believe that you have been misclassified as an exempt worker, contact an experienced Los Angeles employment attorney at the law firm of Steven M. Sweat, A.P.C. by calling 866.966.5240.

Sources

[1] Kao v. Joy Holiday

[2] Wage and Hour Claims

[3] Turman v. Superior Court, 17 Cal. App. 5th 969 - Cal: Court of Appeal, 4th Appellate Dist., 3rd Div. 2017

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