Search

Search form

Car Wash Operator Found Liable for Unpaid Wages, Penalties as Successor of Unrelated Business

  • May 25, 2012

A car wash was liable for unpaid wages and penalties owed by a separate and unrelated business that had operated a car wash at the same location before the property owner evicted it, the California Court of Appeal has held under Section 2066 of the California Labor Code, which applies exclusively to the car washing and polishing industry.  People ex rel. Harris v. Sunset Car Wash, LLC, No. B233915 (Cal. App. Dist. 2 Div. 5 May 16, 2012).  Affirming a $120,000 judgment against the new car wash operator, the Court concluded it was a “successor” within the meaning of Section 2066 of the California Labor Code because it operated in the same location and performed the same services.  Justice Orville A. “Jack” Armstrong issued a vigorous dissent, declaring the Court’s decision violated the precepts of statutory interpretation, misapprehended legislative intent, and visited a gross injustice on the new car wash operator.

Background

Auto Spa Express, Inc. operated a car wash on Sunset Boulevard in Los Angeles.  It had failed to pay its employees the minimum wage and overtime and denied them paid rest breaks.  Sunset Alvarado Investors, which held a note secured by a trust deed on the Sunset Boulevard property, foreclosed on the property, evicted Auto Spa, and leased the premises to Sunset Car Wash, LLC, an entity unaffiliated with Auto Spa.  The California Attorney General sued Sunset to recover unpaid wages and penalties owed by Auto Spa.  The trial court granted summary judgment to the State.  It held Sunset was a successor to Auto Spa based on Section 2066 of the Labor Code.  Sunset appealed.

Applicable Law

Section 2066 of the California Labor Code provides that a “successor to any employer that is engaged in car washing and polishing that owed wages and penalties to the predecessor’s former employee or employees is liable for those wages and penalties” if the successor:

  • Uses substantially the same facilities or workforce to offer substantially the same services as the predecessor employer;
  • Shares in the ownership, management, control of the labor relations, or interrelations of business operations with the predecessor employer;
  • 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; or
  • 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.

“Successor” Found

Sunset argued that Section 2066 did not apply because the company did not “succeed” to Auto Spa’s business, as the term has been interpreted in case law.  The Court rejected Sunset’s argument.  Declaring it need not look beyond the plain meaning of the statute to determine the meaning of successor, the Court decided that, if an entity falls within any of the four categories listed in Section 2066, it was a successor.  Here, the Court ruled Sunset fell within Section 2066 because it used the same facilities and offered substantially the same services as Auto Spa.  Consequently, Sunset Car Wash was liable for the unpaid wages and penalties Auto Spa owed.

The Court also rejected Sunset’s argument that applying Section 2066 denied Sunset due process because it did not buy the car wash from Auto Spa and had no notice of any claims against Auto Spa.  The Court said the existence of the statute alone provided Sunset with the necessary notice of the potential for successor liability.

Dissent

Justice Armstrong dissented.  He asserted the majority misconstrued Section 2066.  According to Justice Armstrong, successors under Section 2066 are those that purchased a business and fell within the categories enumerated in the statute.  In Justice Armstrong’s view, the fact that two business entities happened to have sequentially occupied real estate on which they operated separate and unaffiliated businesses did not create a predecessor-successor relationship between them.  Finally, Justice Armstrong found the imposition of liability on Sunset violated Sunset’s due process right because it was not Auto Spa’s successor, but a “stranger” to Auto Spa.

***

This decision expands potential successor liability for car wash operators, even if they do not actually purchase another operator’s business.  Car wash operators that are considering opening a new facility in space formerly used by a car wash should conduct thorough due diligence regarding the former owners to protect themselves against unknown liabilities.  It remains to be seen whether Sunset will appeal to the California Supreme Court.

©2012 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

Focused on labor and employment law since 1958, Jackson Lewis P.C.'s 950+ attorneys located in major cities nationwide consistently identify and respond to new ways workplace law intersects business. We help employers develop proactive strategies, strong policies and business-oriented solutions to cultivate high-functioning workforces that are engaged, stable and diverse, and share our clients' goals to emphasize inclusivity and respect for the contribution of every employee. For more information, visit https://www.jacksonlewis.com.