Making "Successor" Employers Liable for Unpaid Wages: The Car Wash Operator Example

The California legislature amended the California Labor Code in 2003 to regulate car wash operators in the state, motivated by a concern that car wash employees were not being paid in accordance with law.  An important aspect of this new law, and one particularly exciting for supporters of labor and worker rights, makes a “successor” to a car wash employer liable for any unpaid wages and penalties owed by a predecessor in four circumstances.  (Labor Code section 2066.)  In May 2012, a Court of Appeal reaffirmed the validity of the law, reinforcing section 2066.  (People of the State of California v. Sunset Car Wash, LLC (5/16/12)— Cal.App.4th—.)

The four circumstances that make the new car wash operator a “successor,” and thus liable, are if the new car wash operator:

1.  Uses substantially the same facilities or workforce to offer substantially the same services as the predecessor employer.

2.  Shares in the ownership, management, control of the labor relations, or interrelations of business operations with the predecessor employer.

3.  Employs in a managerial capacity any person who directly or indirectly controlled the wages, hours, or working conditions of the affected employees of the predecessor employer.

4.  Is an immediate family member of any owner, partner, officer, or director of the predecessor employer of any person who had a financial interest in the predecessor employer.

Showing only one of the above four factors is enough.

Yes, that’s correct: this means that if the new car wash operator uses substantially the same facilities (the same physical location and equipment) or workforce (many of the same workers) to offer substantially the same services (wash cars) as the predecessor, the new car wash operator is a “successor” and would be required by law to pay any workers unpaid wages or penalties owed them by the original, predecessor car wash operator.

What would other industries look like if there was a push for more legislation of this type and similar laws were imposed in those industries?

By Lisl Duncan

Legal Developments