California Governor Signs "Wacky" Successor Liability Bill Into Law

Allen Matkins

Allen Matkins

Suppose you had a ne'er-do-well family member with whom you have not spoken in years.  Suppose further that your family member has a minority interest in a restaurant and that you happen to be a vice president of an unrelated restaurant company.  Imagine your surprise (and that of your company) to learn that your company could be liable as a successor for wages, damages and penalties owed by your estranged family member's restaurant.  Amazingly, the Governor recently signed a bill, AB 3075 (Gonzalez), into law that will impose successor liability on businesses based solely on family relations of the partners, owners, officers, directors of the businesses.  

As enacted, a successor to a judgment debtor is liable for any wages, damages, and penalties owed to any of the judgment debtor’s former workforce pursuant to a final judgment, after the time to appeal therefrom has expired and for which no appeal therefrom is pending.  Successorship can be established in several different ways, including by operating "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 judgment debtor".  Cal. Lab. Code § 200.3(a)(4) (new).  The term does not define "immediate family" and it is therefore unclear what relations will qualify as "immediate family".

When I wrote about this bill in late August, I called it "wacky".  I don't like to use pejorative terms for legislation, especially legislation seeking to address a serious problem - employers who don't pay their employees.  However, I believe that the terminology was apt and that it was important to call attention to how bizarre and unfair this bill was.  

The Corporations Committee of the Business Law Section of the California Lawyers Association of which I was then Co-Chair prepared a letter urging a veto of the bill.  Unfortunately, the Executive Committee of the Business Law Section refused to approve the letter and so it was never sent.  Clearly, something is out of whack when the Corporations Committee is not permitted to urge a veto of such an arbitrary and unfair bill.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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