People ex rel. Harris v. Sunset Car Wash: Court of Appeal Clarifies Successor Liability Under Car Wash Worker Statute

Labor Code section 2050, et seq., established a regulatory scheme for car wash operators, motivated by a legislative concern that car wash employees were not being paid in accordance with law. One component of the statutory scheme — section 2066 — imposes liability upon a "successor" to a car wash employer for unpaid wages and penalties owed by a predecessor employer in four circumstances, including where the successor uses the same facilities to perform substantially the same services as the predecessor. We hold that the four circumstances of liability set forth in section 2066 determine the meaning of "successor," and there is no need to look to other statutes and case law to further define the term. We further hold that imposition of liability against a successor who operates at the same location as a predecessor car wash employer does not constitute a violation of due process.

Thus starts People ex rel. Harris v. Sunset Car Wash, LLC (5/16/12) --- Cal.App.4th ----, in which the Court of Appeal upheld the car wash successor liability statute.

Briefly, the facts are as follows: Auto Spa operated a car wash. Sunset Alvarado Investors, which held a note secured by a trust deed on the property, foreclosed on the property, evicted Auto Spa, and leased the same premises to Sunset Car Wash ("Sunset"). Auto Spa had failed to pay minimum wage and overtime to its employees and denied paid rest breaks. The Attorney General brought an action to hold Sunset liable for Auto Spa's unpaid wages and penalties. The trial court (Los Angeles Superior, Judge Daniel J. Buckley) denied Sunset's motion for summary judgment, holding that Sunset was liable under the statute as Auto Spa's successor.

The Court of Appeal affirmed. Labor Code section 2066, provides as follows:

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 meets any of the following criteria: 

(a) Uses substantially the same facilities or workforce to offer substantially the same services as the predecessor employer. 

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

(c) 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. 

(d) 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.

The Court held that a "successor" under the statute is an entity that meets any of the four criteria, notwithstanding the common law or other definition of the term.  Slip op. at 5-6.  

The Court rejected Sunset's contention that imposing liability denied due process because Sunset did not have notice of its potential successor liability.  "In the context of the car washing industry, section 2066 provides the necessary notice of the potential for successor liability for labor law violations.  Any entity commencing business in the industry is presumptively aware of the requirements of section 2050 et seq."  Slip op. at 9.  

The opinion is available here.