I won my case but my employer filed for bankruptcy– now what?

Q:        I got a judgment for back wages from the California Labor Commissioner. But my employer filed bankruptcy and closed the business. I heard that the owners will put up another business somewhere else. Is there anything I can do to collect my back wages?

A:        The question above is not an uncommon one that our law firm has encountered over the years. It can happen that employees are not able to collect their money because the employer has filed bankruptcy and gone out of business, only to be replaced by other companies that repeat the same pattern of violations.

Back in 2018, the practice of fly-by-night businesses in the trucking industry was so rampant that California had to enact a law that required retailers and manufacturers who hire subcontractors like truckers who haul their merchandise to be jointly liable for the nonpayment of wages. This means that customers of trucking companies will have to pay wages should the trucking company they hired folds up and leave the drivers uncompensated.  However, similar protection was not available for non-trucking workers.

AB 3075 a.k.a. Enhanced Enforcement Mechanisms for Wage/Hour Judgments was thus enacted in response to employers who attempt to avoid liability for unpaid wages by filing bankruptcy, dissolving the company, or creating multiple subsidiaries to avoid liability, making it difficult to enforce a judgment.

This new law requires that when new companies register with the Secretary of State, their statement of information must contain a statement, under penalty of perjury, indicating whether any officer or any director, member or manager, has an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law for labor violations.

This law also 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. It sets forth certain criteria that establish what successorship is. Thus, a “successor employer” is liable for any award or judgment if it:

(1) uses the same facilities or workforce to offer essentially the same services as the predecessor employer,

(2) has the same owners or managers who control the labor relations as the predecessor employer,

(3) employs as a managing agent any person who directly controlled the wages, hours or working conditions of the affected workforce of the predecessor employer, or

(4) 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 predecessor employer.

AB 3075 was created to prevent employers from running away from wage judgments or using liability shields to avoid them. Thus, even when these labor violators create a new company, they could still be on the hook for final judgments against them.

The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no-cost. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com. [For more than 25 years, C. Joe Sayas, Jr., Esq. successfully recovered wages and other monetary damages for thousands of employees and consumers. He was named Top Labor & Employment Attorney in California by the Daily Journal, consistently selected as Super Lawyer by the Los Angeles Magazine, and is a past Presidential Awardee for Outstanding Filipino Overseas.]