Posted on April 16th, 2019
Below is a full transcript of this video.
How’s it going fellow entrepreneurs? John Fagerholm again from Defend My Biz.
Today I wanna talk about injustice in California law.
I know that a lot of my videos are about that but this one is one that I’ve gotten a few times over the last few years, and it just seems to be something that people don’t quite understand.
The injustice part is that people start corporations and corporations are meant to … LLCs and corporations. These entities are meant to prevent personal liability for the owner.
California though has a strange twist on this. And that strange twist is that if you are the direct supervisor, meaning if you are the small business owner that directly supervises his employees, even if you’re not the owner, and you’re a direct supervisor you can be personally held responsible.
So, I don’t know how that makes sense to me because that’s the point of having a corporation. In all other aspects of law, it makes sense to have a corporation if you have a business to protect your personal liability. But when it comes to employees it doesn’t matter either way.
I had a particular situation that I was handling for a client where he had a corporation. The government actually came and shut their business down for some other reasons.
They had about a hundred employees. Because the government shut them down and only gave them 30 days to wrap up their entire business, they had to lay off all of these employees.
Once they laid off the employees, then they got sued by the employees under a thing called the WARN Act, and I’ll make another video about the WARN Act some other time but it’s basically if you have over a certain number of employees in California then you have to give a 60-day notice before you lay off employees.
So, then the employees sued much later … A few of the employees sued based on the WARN Act. By that time, my client had already wrapped up the corporation and dismantled it. Once he got sued, he got sued both personally and the corporation got sued.
However, since the corporation was already wrapped up and not functioning anymore in California, it wasn’t an active corporation basically. The corporation didn’t even have the right to defend itself because if you’re not an active corporation registered to do business in California, then you don’t have the right to defend yourself even though someone can sue you.
Well, in this case, the corporation didn’t have any more assets left and so my client was gonna be held personally liable.
So we did the work to unravel the corporation so that at least we have two parties now but there just wasn’t any way to get our client out of the litigation even though there was a corporation, simply because he was a small business owner and he was running the day-to-day operations, so he was basically supervising them.
Luckily we were able to settle with everybody and get him out with as little damage as possible, but I don’t think most business owners understand that in California even if you have a corporation or an LLC, you can be personally held liable if you are the direct supervisor.
So anyway, just another thing to think about is you structure your business to protect yourself and to protect all your personal assets.
Thanks, everybody until next time.
