Under California Labor Code section 2066, a “successor” to any employer that is engaged in car washing or polishing can be liable for the unpaid wages and penalties of its predecessor if, among other things, it uses the same facilities or workforce to offer substantially the same services as the predecessor.
As the Second Appellate District held in Harris v. Sunset Car Wash, this means that a business that operates a car wash can be liable for the unpaid wages and penalties of a prior occupant of the same real estate, even if there is no other relationship or connection between the two businesses.
In Harris, Auto Spa operated a car wash, and had failed to provide minimum wage, overtime, and paid rest breaks to its employees. Lenders foreclosed on the property on which the car was operated, evicted Auto Spa, and leased the same premises to Sunset Car Wash, a business entirely unrelated to Auto Spa. As the dissent in Harris noted, the only connection between Auto Spa and Sunset “is that the two separate companies conducted their unaffiliated car wash businesses on the same physical premises.”
The California Attorney General brought an action against Sunset, alleging that it was liable for the wages and penalties owed by Auto Spa to its employees. A 2-1 majority of the Court, in an opinion authored by Justice Sandy Kriegler, held that Sunset was liable under section 2066, ruling that Sunset fell within the statute’s definition of “successor,” which differs from common law definitions of that term.
In response to Sunset’s argument that “no entity would take over an existing car washing business if, in doing so, the entity would be potentially liable for wage law violations that it could not discover,” the Court responded, “that is a concern for the Legislature, but plays no role in our task of determining the plain meaning of section 2066.”
Justice Orville A. Armstrong wrote a strongly-worded dissent, arguing that the majority’s analysis
not only violates the precepts of statutory interpretation and misapprehends the legislative intent behind the statute, but results in a gross injustice to Sunset, which has fully complied with its Labor Code obligations as a car wash operator.”
Comment:
Those who open a car wash business on the site of a prior car wash business should be aware of the increased potential exposure they face under section 2066. Under Harris, liability for employment law violations may linger in the soil (or asphalt) like radioactive waste.
Furthermore, proving the non-liability of a predecessor whose records may no longer even exist may be especially difficult. In employment litigation, the onus is often on the employer to maintain employment records. Thus, an employee’s unsubstantiated allegations against the prior employer may be hard, or even impossible, to answer.
It is hard to imagine this is a result the California Legislature intended, but with Harris, it becomes the reality now, unless or until the law is changed, or the California Supreme Court weighs in on the issue.
If you have any questions about Labor Code section 2066, or other employment law issues, please contact Michael Newman.
