Employer Cannot Escape Fraud on Workers through Bankruptcy

After 3 former employees filed claims before the California Labor Commissioner alleging wage and hour violations, Employer Chang Sup Han filed for Chapter 7 bankruptcy in order to avoid paying the judgments.

Han operated custodial maintenance companies, closely supervising the employees’ performance, including hurrying them through bathroom breaks, personally driving them to each worksite while forbidding communication between the workers, denying breaks or meal periods, and paying only for forty hours of work per week (regardless of actual time spent working).

Each worker testified to working 6 to 7 days per week up to 15 hours per day.  Yet, Han successfully got his debts to each declared “dischargeable” by the bankruptcy court by claiming he believed he only had to pay minimum wage for forty hours, and that he never meant to defraud anyone.  Worse, the bankruptcy court agreed, finding that Han’s actions did not amount to fraud for purposes of non-dischargeability.

The workers appealed. (See Castro, et al. v. Han (In re Chang Sup Han) C.D. Cal. Case No. 2:13-cv-1524-ODW). On appeal, the Court found that Han’s actions showed either willful ignorance, or else knowing violations of the state laws that protect workers. Thus, the Court held that the Employer’s debts to the 3 workers are not dischargeable under the fraud exception.

The case has been sent back to the bankruptcy court for further proceedings consistent with the Court’s decision.

To further discuss creative strategies to benefit workers in bankruptcy court, contact your labor law counsel.

By Jordan D. Mazur | July 9, 2013

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